SC Senate ponders tax hike on highest earners

abeam@thestate.comJanuary 25, 2013 

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— South Carolina’s highest earning residents would pay about $200 a year more in state income taxes if lawmakers approve a bill introduced in the state Senate.

Tax increases are rare in the Republican-controlled state Legislature. Just this week, House Speaker Bobby Harrell, R-Charleston, sent out a news release trumpeting tax cuts worth $26 billion passed since 1994.

While 15,000 SC. taxpayers may not agree, lawmakers on both sides of the political aisle insist the Senate proposal is not a tax increase.

The bill would affect married couples with taxable incomes of $300,000 or more and single people with taxable incomes of $250,000 or more – about 15,000 of the more than 2 million tax returns filed each year in South Carolina. (“Taxable income” is how much money you make in a year minus the tax deductions you qualify for, including mortgage interest and children.)

The increase means state lawmakers would have an extra $3.1 million in the general fund to spend in the state’s fiscal year that starts July 1 – money that lawmakers had not planned on having. The state general fund is about $6.9 billion.

The tax hike is on the table because South Carolina borrows much of its income tax code from the federal government, mostly for simplicity’s sake. Ensuring the two tax codes conform means taxpayers have fewer forms to fill out. But, when the federal government changes its tax code, it also means that South Carolina has to change its code, too.

“It simply conforms to what the feds do,” said Senate Finance chairman Hugh Leatherman, R-Florence. “If we don’t do that when your accountant does your taxes, he’s got to do” more work.

On Jan. 2, the federal government passed a law that increased the taxable incomes of certain taxpayers. South Carolina’s bill, which would conform to that change, would do the same thing.

Lawmakers usually pass a bill like this every year. But, most of the time, the bill ends up costing the state money, according to Burnet Maybank, former director of the state Department of Revenue, now a tax attorney with Columbia’s Nexsen Pruet law firm.

In the 2010-11 budget year, for instance, the state Board of Economic Advisors estimated the state would lose $5 million by conforming to the federal tax code.

“This year, for the first time in many years, the federal tax conformity will be a net increase to the state, although it is a very small amount in the grand scheme of things,” Maybank said. “Three million dollars is practically nothing.”

The two sponsors of the bill -- Leatherman, R-Florence, and Senate Minority Leader Nikki Setzler, D-Lexington – say they do not consider the bill a tax increase. While the change does result in some South Carolinians paying higher taxes, it also preserves 33 tax breaks, including the deduction for interest on student loans, the $250 deduction for teachers’ classroom expenses, and deductions for state and local sales taxes.

Reach Beam at (803) 386-7038.

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