Sanford’s tax plan fails in Senate subcommittee

By Jim Davenport, Associated Press

March 24, 2005

COLUMBIA, S.C.– Gov. Mark Sanford showed up at a Senate subcommittee meeting Wednesday in what turned out to be a losing effort to win support for his centerpiece plan to spur small business growth and attract wealthy retirees and executives to the state with an income tax cut.

The Republican governor had planned to be in Mount Pleasant, just across the river from Charleston, standing next to two of his closest Washington, D.C., allies — U.S. Sens. Lindsey Graham and Jim DeMint — and adding octane to his tax-cutting plans. But he said a news report of criticism from key senators in the debate prompted him to call that off and stay in Columbia.

His appearance didn’t help. On a 6-0 vote, the subcommittee gutted the House bill that contained Sanford’s income tax plan and replaced it with a tax cut for small business owners that had been in Senate Finance Committee Chairman Hugh Leatherman’s bill.

The bill, which has 37 of the state’s 46 senators as co-sponsors, lowers small business income tax rates from 7 percent to 5 percent — the same rate large corporations pay.

The proposal will be debated in the Finance Committee next week and move to the Senate floor, Leatherman said.

The vote was a rebuff to Sanford, who told the subcommittee what he’s been saying for more than two years — reducing the state’s income tax rate would help the state’s economy.

On the campaign trail in 2002, Sanford argued for eliminating the income tax altogether. Since the election, he’s revised that. Now he wants the state’s top tax rate cut to 4.8 percent from 7 percent.

“This is not a new conversation,” Sanford said. But the urgency to cut taxes has increased as the state’s jobless rate has risen to the nation’s fourth highest. He held up a newspaper with reports of more job losses to emphasize the problem. The income tax cut will spur the economy and create jobs, he said.

The state expects $619 million in new revenue during the coming year, Sanford said. So the issue boils down to a question of whether the Legislature spends that or “do the 4 million people in South Carolina decide how this money gets spent?”

Sen. Scott Richardson, R-Hilton Head Island, noted Sanford’s proposal has a nearly $1 billion price tag. “I know that’s where my fear factor is,” Richardson told Sanford.

Besides there are other issues that the state couldn’t address if it went along with Sanford’s proposal, including road maintenance, Richardson said.

And Bill Gillespie, the state’s chief economist, said the state could be $100 million short on revenue because of Sanford’s plan when it was fully implemented in 10 years.

Sen. John Matthews, D-Bowman, told Sanford he didn’t share the goal of attracting wealthy retirees to the state. “The Hilton Head economy has hurt the indigenous people,” Matthews said, by raising their cost of living in the area. At the same time, wealthy retirees tend to create low-wage, service industry jobs, he said. “I don’t think a Hilton Head kind of economy fits us,” he said.

He’d rather see the state invest in small businesses than attracting retirees, he said.

The Leatherman bill costs less too, about $129 million when fully implemented in four years.

It “will absolutely create jobs in this state,” Leatherman said.

Small business groups cheered the progress.

“We’re finally in a position to see some results,” Tim Wilkes, chairman of the South Carolina Small Business Chamber of Commerce said. His group has sought the change for years.

“Our whole goal was to cut taxes for small business and that was achieved today,” Michael Fields, state director for the National Federation of Independent Business said.

While Sanford expected the outcome, he wasn’t put off by what was about to happen. After he left the meeting, Sanford said he wants the larger income tax plan to move forward and says he’ll continue to try get public support for it. “They’re ultimately the biggest drivers of change,” he said.

But he also noted the progress.

“Nobody was talking about cutting income taxes a couple of years ago. The fact that you’ve got the chairman of Senate Finance talking about cutting income tax for small business is a long way from where this debate started,” he said.

That makes it “a very positive step,” Sanford said.

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