COLUMBIA — House Republicans advanced measures Tuesday that cut South Carolina’s tax rate on manufacturing and commercial property – eventually reducing revenue to local governments by more than $1 billion a year – and will require some residents to pay more in personal income taxes.
Democrats and local government advocates contend the business bills would force cities, counties and school districts to either increase taxes on other types of property – such as owner-occupied homes and cars – or drastically cut services. That’s because property taxes pay for local services. None goes to state coffers.
“It’s pretty easy for us to sit up here and say we want to reduce taxes when we don’t have any skin in the game, wouldn’t you say?” asked House Minority Leader Harry Ott.
He said he agrees with cutting the taxes, but the state should send money to local governments to offset their losses. As is, he argues, Republicans are trying to get credit for decreasing taxes in an election year, when it’s really a shift.
“We tell people we want to cut, cut, cut, then we want to tell guys representing local governments, you do all the cutting,” said Ott, D-St. Matthews.
He was referring to two property tax bills advanced by a Ways and Means subcommittee on which he sits. One would reduce the rate on commercial and rental property from 6 percent to 5 percent over eight years. State budget advisors expect that to reduce revenue to local governments by $827 million when the phase-in is complete in 2020-21.
The other reduces the tax rate on manufacturing property from 10.5 percent to 6 percent over four years. That price tag would total $228 million when the phase-in is complete. That bill initially failed on a 2-2 vote. The panel voted again after a third Republican arrived.
“You’ve got a lot of gall walking up in here with this – transferring $228 million onto taxpayers in this state, all under the guise of relieving business taxes,” Rep. Gilda Cobb-Hunter, D-Orangeburg, told the bills’ main sponsor, Rep. Tommy Stringer.
Stringer, R-Greer, led the GOP Caucus’ study committee on tax reform, which has been meeting since last summer. The bills are part of a package filed last week that House Republicans tout as a tax overhaul.
Stringer said the seven bills are designed to make the tax code fairer, simpler and flatter. He argued the cost to local governments is mathematically insignificant in relation to all the money local governments collect. He disagreed that the loss would automatically force local governments to increase taxes elsewhere – saying voters could boot local politicians out of office if they do.
Anderson County Auditor Jacky Hunter, a Republican, said his county would see a huge loss. He noted half of the county’s budget pays for law enforcement.
“What are we going to do – fire 20 deputies?” he said. “I understand the problem, but this is not the solution, and I’m a Republican, too.”
A separate Ways and Means subcommittee advanced a bill collapsing the personal income tax brackets from six to two. That measure would impact state revenues – reducing money to state coffers by an estimated $51 million.
While taxpayers in the upper brackets would see a reduction of up to $84, more than 267,000 filers at the bottom would get hit with an increase of up to $84. That’s because those with taxable income who now pay zero would be taxed at 3 percent.
Those who pay at the highest tax rate of 7 percent would see no change.
The more than 737,000 tax filers who lack taxable income after federal tax, credits and deductions also would see no change. For them, the zero percent would still apply.
Republicans say it’s about simplifying the tax code.
“It would not surprise me if Republicans were taxing working people so they could give higher income people a break,” Ott said.
The property tax measures are meant to correct some of the unintended consequences of a 2006 tax-swap law.
That law cut property taxes on owner-occupied homes, by removing school operating costs from their bills, in exchange for a penny-on-the-dollar increase in the state sales tax, plus a reduction – and later elimination – of sales taxes on groceries. The law also capped how much property values could rise for purposes of reassessment, until the property’s sold, and limited local governments’ ability to raise property taxes.
The consequences have drawn complaints from not only school and local government officials, but real estate agents and developers, as well as businesses and owners of second homes and rental property who complain the tax burden shifted to them.
“I’m real concerned with dejà vu,” Cobb-Hunter said. “We shifted the tax burden back then to business. It seems to me what we’re doing now is shifting away where it winds up on the backs of local government. It winds up on the backs of our constituents.”