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March 12, 2012

Tax-reform plan would eliminate tax-free holidays

Parents, take note: You will not have a state sales-tax holiday to buy back-to-school supplies in August if lawmakers approve a tax-reform plan that House Republicans will introduce Tuesday.

Parents, take note: You will not have a state sales-tax holiday to buy back-to-school supplies in August if lawmakers approve a tax-reform plan that House Republicans will introduce Tuesday.

But, if the plan passes, you will pay less in state sales taxes year round, and you could get a break on your income taxes as well. Meanwhile, businesses would not have to pay any state income taxes, and they would pay less in property taxes.

The proposal would cut $220 million from the state’s revenues. But as the GOP-controlled House meets this week to debate the state’s $6 billion general fund budget for the fiscal year that starts July 1, they have not – and likely will not – set aside any money in the budget to pay for that tax relief, which troubles Republican Gov. Nikki Haley.

Tuesday, Haley is scheduled to travel to Greenville, Aiken and Charleston to criticize lawmakers for not including $140 million in the state budget for tax relief that she requested. Haley is convinced the House Republicans’ tax cuts – virtually identical to her plan – are doomed to die in the state Senate because they are not part of the state budget.

“When you drop bills in March the likelihood of it passing in March through subcommittee, on the floor, through the Senate subcommittee, through the Senate and to the governor’s desk is highly unlikely,” Haley said Monday. “And, at the end of this year, all those bills die.”

But Republicans point to other major legislation – including last year’s immigration bill – that passed after the budget nearly was finished. Lawmakers simply amended the budget to make room for it.

“The biggest advantage we have to getting this reform passed this year is the Senate is up for re-election,” said Greg Foster, spokesman for House Speaker Bobby Harrell, R-Charleston. “Past history, when the Senate has been up for re-election, you see most of your major plans much more on a fast track because of the pressure.”

The Republican tax plan would preserve broad sales-tax exemptions – including exemptions for gasoline, food, electricity, water and medicine – while eliminating more narrow tax exemptions, according to state Rep. Tommy Stringer, R-Greenville, the principal author of the plan.

For every sales-tax exemption that is eliminated, bringing in the state more money, the Republicans propose lowering the overall state sales tax rate, making the proposal revenue neutral.

Included in the exemption that would be eliminated are sales tax holidays for back-to-school supplies, usually in August, and guns, scheduled for the weekend after Thanksgiving. That’s because Stringer said most Tax Foundation studies that he has seen show those holidays do not save consumers any money.

“Retailers can just jack the prices up,” Stringer said. “You are creating a false market where everyone rushes in for one weekend because you are getting a, quote, ‘savings.’”

But some Democrats are not convinced.

“A lot of parents ... look to that weekend to get their kids what they need for school,” said Rep. Leon Stavrinakis, D-Charleston

The Republican plan also would reduce property taxes for manufacturers and businesses to 6 percent from 10.5 percent. Property owned by utility companies would not be included because, Stringer said, some school districts rely on property taxes from utilities for 100 percent of their budgets.

Stringer was supposed to introduce the tax-reform bills Monday – the first day of the weeklong House budget debate – but did not have time. That’s because lawmakers voted more than 114 times on various items in the state budget.

The budget voting Tuesday promises to be more confrontational as lawmakers decide how to spend a pot of $30 million that now is set aside to repair county roads.

Some lawmakers, mostly Democrats, want to give the money to local governments. Others, mostly Republicans, want to redirect the money from roads to help pay down debt at the state Department of Employment and Workforce, the agency that pays out unemployment benefits. Helping that agency pay down its debt would lower taxes on state businesses, they say.

But some Democrats, including state Rep. Bakari Sellers, D-Barnwell, have vowed to bring the budget debate to a halt if Republicans try to take the money away from local governments.

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