Governor Sanford Proposes Tax Reform

Governor Mark Sanford today announced a three-part proposal to spur job creation and capital investment by cutting income taxes for individuals and corporations. The plan would:

- Enact an optional income tax cut of nearly 50 percent, cutting the state’s top marginal rate from the current 7 percent to a flat 3.65 percent. The plan would also fully index the income tax brackets. The cut would be offset by a 30-cents-per-pack increase to the state’s cigarette tax, a new $3-per-ton tipping fee for landfill dumping, and elimination of the state’s sales tax holidays.

- Implement a 10-year phase out of the corporate income tax from the current 5 percent to 0. The cut would be offset by transitioning from most corporate tax exemptions and other business incentives over that same 10-year time period. 

- Form a committee to look at inequities in the current property tax structure that adversely impact businesses.

“There has never been a more important time for this discussion about where we want to go as a state with respect to growing our economy,” Gov. Sanford said. “We believe staying competitive amid today’s challenges means two things. One, a lowered and flattened income tax would represent a significant step towards making our state more attractive, and improving our competitive position when it comes to growing our economy.  Two, we’ve got to get away from this piecemeal approach to jobs incentives. We believe a better approach would be to simply lower the overall tax rate for corporations, so that we’re not only giving companies a good deal when they decide to locate here but we’re giving them a reason to stay and expand. This is particularly important to avoid the unintended consequence that comes with much of today’s incentives system, wherein we have one set of incentives for businesses coming in to our state, and much less in the way of help for small and mid-size businesses already here in our state.” 

States’ marginal income tax rates are key to their ability to grow the economy. According to a recent study from the Atlanta Federal Reserve Board, “Relative marginal tax rates have a statistically significant negative relationship with relative state growth.” Put another way, the lower the tax rate the greater the state’s economic growth. The flat tax proposal, would offer South Carolinians two options for paying their taxes, starting in 2010 – to either pay the current 7 percent rate and be eligible for current deductions, or to pay a flat tax of 3.65 percent with no deductions. The flat tax would put South Carolina more in line with other Southeastern states’ income tax rates. At 7 percent, our state’s rate is effectively the highest in the Southeast.

The tipping fee component of the flat tax proposal is also aimed at beginning to make an impact in out-of-state garbage being sent to our state, which in part drives the need for mega-dumps that many citizens have spoken out against.