State needs this business tax cut

By Frank Knapp, The State

Published April 11, 2005

The State should be congratulated for its recent editorial recognition that the state income tax on small business profits should be reduced from 7 percent to 5 percent, the same rate larger corporations now pay. The editorial stated: “We’re delighted that the Senate is focusing on the problem of charging home-grown businesses –the ones that provide the bulk of our jobs — a tax rate that’s 40 percent higher than the rate large corporations pay. Eliminating that disparity very well might spur job growth, and it certainly would make the tax system fairer.”

However, The State’s editorial concludes that the Senate bill, sponsored by Hugh Leatherman and passed by the Senate with all but five votes, that corrects the tax disparity problem should not become law. As president of the S.C. Small Business Chamber of Commerce, let me take issue with each of the objections raised in the editorial.

The editorial argues that state government cannot afford the projected $129 million tax cut targeted toward small businesses because “the state is not collecting enough money to adequately fund essential services.”

Proponents of the Senate bill designed the legislation with this concern in mind. In order to cause the least burden to the state budget and agency needs while moving forward on tax fairness for small businesses, the bill phases the tax cut in over four years, with a first-year fiscal impact of only $32 million. The anticipated growth in state revenue should easily offset this cost while leaving additional new money for government services next year and each year thereafter.

The editorial suggests that the small-business tax cut should not be enacted unless it is part of an overall review of our entire tax system. Certainly our tax system is fraught with inequities and disjointed public policy. And there have been many attempts over the years to study our state tax code for reform. Unfortunately, all attempts have failed.

To say that small businesses should not receive tax equity until an illusive comprehensive tax reform plan becomes reality is simply to condemn small businesses to forever not receiving the tax relief nearly everyone believes they deserve.

The editorial worries that the Senate tax cut plan “would reduce the portion of government services that are funded by businesses– and increases the portion paid for by individuals.” While this is a mathematically correct statement and an interesting topic for policy wonks, it should be of no concern to individual taxpayers. No one will pay higher taxes because of this tax cult.

Small businesses are finally close to achieving the level playing field with big businesses on state income tax. The General Assembly should pass the Senate plan for cutting small businesses income tax. It’s justified. We can afford it. We should do it now.

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