An S.C. House panel unveiled a proposal Thursday to increase the taxes on groceries and power bills in the Palmetto State.
But that panel also proposes cutting other taxes as part of a tax-reform package that House Speaker Jay Lucas says will make the state’s tax code “broader, fairer and flatter.”
Now, the groceries you put in your shopping cart and the electricity bills you get in your mailbox are cheaper because both are exempt from the state’s 6 percent sales tax.
But the S.C. House Tax Policy Review Committee proposes to eliminate those exemptions, meaning South Carolinians would have to pay sales taxes on their groceries and utilities. Sales taxes also would be levied on services, such as doctor’s bills.
To partially offset that cost, the panel proposes cutting the sales tax in half – to 3 percent from 6 percent now.
The state’s income tax rates also would be replaced with a single, flat 4.85 percent tax rate. Now, that income tax ranges from 3 percent to 7 percent.
The panel’s tax reform proposals do not address Act 388, the controversial 2006 law that exempts homeowners from paying school operating taxes, putting that tax burden on businesses, second homes and rentals.
S.C. House President Pro Tempore Tommy Pope, the York Republican who chairs the tax-reform committee, said the proposals will save South Carolinians money. Pope hopes they also offset the impact of federal tax code changes approved by Congress late last year.
“It takes courage to do this. It takes political courage to do it,” he said. “It’s the right thing.”
Last year’s changes to the federal law will save South Carolinians $1.6 billion on their federal income taxes. But the changes also impacted the tax codes in South Carolina and other states that tie their states taxes to federal tax law.
Unless the state’s tax laws are reformed to reflect the changes in federal tax law, South Carolinians could pay $180 million more in state income taxes in 2019 – about $75 a person, according to the S.C. Revenue and Fiscal Affairs Office.
“I told (House budget chairman) Brian White we’re sending him our ‘reformity’ bill,” Pope said. “You can do conformity and you can fix the problems while we’re in there tinkering with the engine.”
The panel proposes phasing out the state’s existing sales-tax exemptions over five years, starting 2023. All exemptions not re-authorized by the Legislature would be eliminated by 2028.
Speaker Lucas, R-Darlington, told the House panel Thursday that tax reform will attract new residents, retirees and manufacturers to South Carolina.
“We have got momentum going, and it’s tremendous momentum.”