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Sanford wants to scrap corporate income tax

Governor unveils part of 2009-2010 budget proposal

COLUMBIA -- Gov. Mark Sanford has proposed eliminating the corporate income tax and would pay for it with tax breaks given to spur certain industries and research.

In addition, Sanford said the state should create an alternate, flat income tax rate 3.65 percent -- funded by a 30-cent increase in the state's lowest-in-the-nation cigarette tax. Sanford also has asked for a panel to study the inequities in business property taxes.

The proposals, unveiled in Greer on Tuesday, are part of Sanford's 2009-2010 budget.

Lawmakers and observers said eliminating corporate income tax is an interesting idea but want to hear more details.

But Sanford's alternate, flat income tax rate which he proposed last year could find little support among those who want to raise the cigarette tax and use the money for some form of health care coverage.

South Carolina could join four other states -- Nevada, South Dakota, Washington and Wyoming -- with no corporate income tax, Sanford said. South Carolina collects about $300 million in corporate income taxes annually, far less than sales and individual income tax collections.

"We've got to get away from this piecemeal approach to jobs incentives," Sanford said in a written statement. "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."

Sanford's plan would phase out 14 tax breaks over a decade to reduce the corporate income tax rate from 5 percent. But many of those incentives hydrogen research, infrastructure, corporate headquarters have supporters who would argue against their elimination.

Greg Foster, spokesman for House Speaker Bobby Harrell, R-Charleston, said Harrell was interested in the proposal and wanted more details. Harrell has been a strong advocate of tax credits for hydrogen research.

Help for health care sought

With the state expecting a budget deficit next year, others want a comprehensive review of the state tax system.

"It's got some good pieces and some bad pieces," said Otis Rawl of the S.C. Chamber of Commerce of Sanford's proposal. "We need a more comprehensive look. We don't need to piecemeal these things in."

Rawl said the Legislature should appoint a committee to study the issue for as long as it takes to make recommendations. The chamber, Rawl said, favors "broad-based taxes with rates."

Rawl said the chamber also believes that if the cigarette tax is raised, the money should somehow fund health care.

Last session, the General Assembly came within a few votes of overriding Sanford's veto of a 45-cent a pack increase of the cigarette tax. That money would have been used to expand health care for low-income residents and children.

Sen. Joel Lourie, D-Richland, said Senate Democrats will require new cigarette tax revenue to fund health care. Lourie said Democrats might accept using the funds to supplement programs cut during three rounds of mid-year budget cuts since July.

Lourie also favors a larger cigarette tax increase, 50 cents a pack.

"It's a perfect fit for helping to pay for health care access for more South Carolinians," Lourie said. "Many people feel pretty strongly that we would be missing an opportunity (by not using the money for health care)."

Sanford spokesman Joel Sawyer said the governor would like all three sections of his plan approved but could not say if he would support legislative approval of a portion of the plan.

The Sanford plan

Gov. Mark Sanford wants to:

• Eliminate the 5 percent corporate income tax

• Cut the 7 percent income tax rate -- the highest rate paid by state taxpayers -- by roughly half

• Raise the cigarette tax by 30 cents a pack and eliminate tax-free weekends to pay for the income tax cut.

Slashing taxes -- a closer look

Gov. Mark Sanford wants to eliminate the corporate income tax and cut the highest individual income taxes. His plan is "revenue neutral," meaning other taxes and fees would offset the cuts. Details of Sanford's plan:

Corporate tax

• Eliminate the 5 percent tax over 10 years.

• Replace the $300 million revenue by eliminating 14 tax incentives the state provides businesses

Income tax

• Cut the 7 percent income tax rate -- the highest state levy -- roughly by half.

• Replace the revenue by raising the state's cigarette tax by 30 cents a pack, eliminating the state's sales tax holidays and creating a $3 a ton tipping fee for dumping in landfills.

Budget questions answered

This week, two key meetings will shed more light on the depth of S.C.'s budget woes:

Today

The state's Board of Economic Advisors will meet at 4 p.m. and could revise its estimate of how much revenue the state is likely to take in. The board has cut revenue projections three times since July, by a total of $640 million.

Thursday

The State Budget and Control Board meets and, if the BEA revenue estimate is low enough, could order immediate across-the-board spending cuts.

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