S.C. may not have money to alter tax system

Jun 16, 2009 — The State

John O'Connor

Jun. 16, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Lawmakers said the state budget crunch could derail a proposal to study how South Carolina taxes its residents and businesses.

The proposal would create a panel to study the state tax code, particularly $2.75 billion in items exempted from sales tax, and recommend changes to lawmakers. The goal is a fairer and more efficient tax structure, though critics say the panel might not deliver and should also look at fees the state charges.

House and Senate lawmakers will meet today -- during an expected one-day veto session -- to try to reach an agreement on the bill. The bill was near the top of legislative priorities entering the session but has struggled to find support.

Among the points of contention are whether Democrats can appoint a member to the panel and whether the study will truly be a comprehensive look at state revenues -- and not just targeted toward the sales tax.

But the biggest issues, said Rep. Brian White, R-Anderson and one of the House negotiators, is finding a way to pay for committee staffers, travel and other costs.

"We don't have any money," White said, noting state economists last week cut $92 million from the current year's budget. The House has had to furlough staffers to make its budget this year. "I think that's a big problem from the House perspective."

Business leaders, think tanks such as the Palmetto Institute and, at times, Gov. Mark Sanford have all asked for years for an overhaul of the state tax code. Such a study might produce lower taxes charged on a broader range of goods, services and residents, they argue, which could make state revenues more stable.

But those changes could mean eliminating millions in tax exemptions that range from newsprint and power used in manufacturing, to groceries, prescriptions and other necessities. A number of exemptions are targeted to specific products or companies, such as one for an artificial knee joint treatment.

In addition, businesses and Democrats are particularly concerned about a statewide property tax reform plan approved in 2006. That plan trimmed homeowner taxes but shifted tax costs to business.

John DeWorken, of the Upstate Chamber Coalition, said tax reform is at the top of the business community's agenda. DeWorken said businesses need to be willing to give up their targeted tax break in exchange for the long-term benefits of a better revenue system.

"Everybody has to put their sacred cows on the table," DeWorken said. "We're as guilty with the piecemeal stuff as anyone, but the piecemeal solutions are not cutting it."

DeWorken said the property tax swap shifted between $250 million and $350 million in taxes to businesses and may have scuttled an unknown number of development deals. He was hopeful lawmakers could reach a deal.

So was House Minority Leader Harry Ott, D-Calhoun, but only if the bill allowed Democrats some input. The House version gave no appointments to the party, while the Senate bill did.

Bryan Cox, of the South Carolina Policy Council, said the group supports the idea, but the current plans are not truly comprehensive. Lawmakers need to include more than $7 billion in fees, fines and other costs state government charges, he said.

Cox also objected to requiring an up-or-down vote on the panel's recommendations. Any changes, he said, should be debated on the floor. Cox worried that lawmakers could stack the panel for a predetermined outcome.

"It would steal the motivation that has been built," he said. "Tell the public we're going to have comprehensive tax reform, but not really deliver on that."

House and Senate negotiators will meet this morning at 10:30 to work on a plan, ahead of lawmakers' convening at noon. Lawmakers also will vote on 10 bills Sanford vetoed, including a payday lending bill and a bill changing how the State Ports Authority operates.

Reach O'Connor at (803) 771-8358.

Newstex ID: 35780881