Since the start of the Great Recession, Skip Davenport says sales at his Greer car dealership have fallen 40 percent – forcing him to lay off workers and cut the pay of everyone else.
In 2010 that recession struck the city of Greer, too, as the city ran a $1.3 million deficit – leaving council members with no option, they said, but to raise taxes for the first time in 10 years and charge every property owner a $75 “public service fee.”
Davenport and the city of Greer both say they need money. The question for state lawmakers is: Who should get it?
House Republicans are siding with Davenport. They have introduced a series of bills that they say will lower business property taxes, one of the primary ways that local governments get money. The state Board of Economic Advisors estimates the cuts would cost local governments $1 billion in revenue by 2021. Of course, that also means the cuts would save local business owners $1 billion by 2021.
Local governments say the cuts would force them either to reduce services or raise taxes, leading Democrats to call the proposals a tax shift to local homeowners.
But House Republicans argue that if concern about the impact of spending cuts always is paramount, taxes never will be cut. Instead, they argue tax cuts will force spending cuts that will create jobs.
‘This is not a tax cut’
Greer’s Amanda Somers says a tax cut would help her business to create more jobs.
Somers co-owns Sports Spine and Industrial Physical Therapy in Greer, a 12,000-square-foot building on 6.2 acres. Her business also doubles as a health club with paying members. Since the recession, the health club has lost memberships. And, as people have lost their jobs and the health insurance that went with those jobs, Somers’ physical therapy business also has taken a hit – forcing her to lay off employees.
Somers said her business’s annual taxes are $33,000 a year, adding a property tax cut would free “up cash for us to be able to hire additional staff.”
Local governments say it is not quite that simple. They will have to offset revenue that they lose somewhere – either by cutting services or raising taxes on homeowners.
In Columbia, city officials have cut services – including halting commercial garbage pickup – and laid off employees to keep their $107 million general fund budget in line. City manager Steve Gantt said city officials likely would have only one choice if the proposed business property tax cuts pass.
“We will have to raise (taxes),” Gantt said. “You couldn’t take that kind of hit in the general fund without us having any kind of growth. ... Most municipalities in the state would be in the same boat.”
So if state lawmakers cut taxes on businesses, only to force local governments to raise other taxes, can you really call it a tax cut?
“This is not a tax cut. This is simply a tax shift from one segment of society onto another,” says House Minority Leader Rep. Harry Ott, D-Calhoun. “It bothers me that Republicans in the South Carolina House want to go around here and beat their chest saying, ‘We reduce taxes,’ when, in fact, they have not reduced a single tax that flows into the state general fund.
“All they did was want to take credit for cutting a tax and then throw it to local governments who are going to have to either raise taxes or cut services.”
‘Which comes first?’
The House Ways and Means Committee is scheduled to vote on the property tax bills Tuesday. The House could vote on the bills Wednesday or Thursday, but that is unlikely. However, if they don’t pass the bills next week, the legislative calendar could kill the proposals. That’s because, after next week, House lawmakers will be on furlough for two weeks. And, by the time the House comes back, the Senate will be in the middle of its time-consuming state budget debate.
That wouldn’t necessarily derail the tax-cutting bills, Senate Finance Committee chairman Hugh Leatherman, R-Florence, said Friday, adding the Senate is willing to pass the tax cuts.
“We all recognize we need tax reform.” But, he added, “if for some reason people don’t like it, it gets bogged down. ... It depends on what’s in it and how interested the two bodies are.”
In the past, when state lawmakers passed tax cuts affecting local governments, they would reimburse cities and counties with state money to help make up the difference. But these bills include no reimbursements – and for a reason, said state Rep. Tommy Stringer, R-Greenville, the legislation’s primary author.
“Which comes first: tax policy or spending policy?” Stringer said. “For years, spending policy has trumped tax policy. ... Our point is having a sound tax policy ... should be first because I think we have a duty to the taxpayers to have a fair and equitable tax system. Then, you have spending reform.”
Stringer said his plan would reduce business property taxes a little bit each year for eight years, giving local governments time to prepare.
“The real goal is to shrink government,” said tax policy research analyst John Ruoff. “That will be the real effect.”