The average S.C. taxpayer would save about $689 on their state income taxes under Republican Gov. Nikki Haley’s tax-swap plan that would cut state income taxes and increase the gas tax.
Those savings would be offset, to a small degree, by having to pay about $66 on average in higher gas taxes.
But don’t start spending your tax savings yet.
The state’s most powerful politician all but declared Haley’s tax-swap proposal dead Thursday.
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State Senate President Pro Tem Hugh Leatherman, R-Florence, said the loss in state income tax revenue —$1.8 billion in 2025 alone — would force huge cuts to other state programs, including education, public safety and mental health.
The Senate leader also said Haley’s proposed gas-tax increase, which would raise about $3 billion over 10 years, is not enough to address the state’s $15 billion deficit in the money it needs to fix roads and bridges over the next decade.
“We’re not raising enough to fix the problem, but yet we’re eroding our tax base, and that erosion is not a one-time erosion, it will be there year after year, after year,” said Leatherman, who also is chairman of the Senate Finance Committee.
Wealthiest would save $145,784
Haley’s plan would increase the state’s 16.75-cent-a-gallon gas tax by 10 cents over three years. In exchange, she wants the state’s income tax — now capped at 7 percent — cut by two percentage points over 10 years.
The average taxpayer would net a $623 tax break.
However, an estimated 1.1 million S.C. residents would get no income tax break. Those filers — who make up to $5,000 a year in taxable income — do not pay individual income taxes. But they would have to pay the higher gas taxes.
Meanwhile, the wealthiest 379 S.C. taxpayers would see a cut of $145,784 each in their income taxes, according to the state Revenue and Fiscal Affairs office.
Leatherman is concerned about the impact of the income tax cuts that Haley is proposing. Those tax breaks would result in a $1.8 billion decrease in the state’s general fund revenues in 2015.
As a result, cuts would have to be made somewhere — education, public safety, mental health or other services the state provides, said Leatherman, who chairs the Senate’s main budget-writing panel.
Even now — with the general fund at close to $7.5 billion a year — lawmakers have to decide between competing demands for state dollars.
For example, public schools, one of the state’s primary responsibilities, do not get the full amount of money that the state says they should get due to cuts made during the Great Recession. It would take an added $600 million in state spending to bring schools up to full funding.
‘Whose money is it anyway?’
Haley’s proposal, made during her State of the State address Wednesday, was receiving a warmer reception from House leaders Thursday.
Working with less money would require prioritizing, said House assistant majority leader Gary Simrill, R-York. “Whose money is it anyway? Is it government’s money or is it the people’s money?”
Still, Simrill said pairing tax reform to addressing road needs could present a roadblock to getting either done. “If you hinge infrastructure reform and repair with the income tax reduction ... does either happen?”
Simrill does want to reform the oversight of the Transportation Department, now controlled by legislative appointees, to give the governor more executive control.
However, Leatherman said restructuring the Transportation Department could be tough to pass, noting the governor didn’t propose how to restructure it.
‘Not even a scratch’
Leatherman said a plan to fix the state’s crumbling roads will take raising additional revenues in addition to increasing the gas tax.
“I applaud the governor for finally recognizing that if we’re going to fix our roads, there’s got to be a user fee (increase),” he said, referring to Haley’s proposed gas-tax hike.
Haley’s proposal — increasing the gas tax by 10 cents in three years and transferring the proceeds from state taxes on car sales from the general fund to roads, proposed in her executive budget — would generate $3.5 billion toward the $15 billion roads deficit over the next decade.
“That sounds good and looks good, but that’s not even a scratch on the surface,” Leatherman said.
Other revenue-raising options also must be on the table, Leatherman said.
Other options, introduced in the past, include raising the cap on the state sales tax on vehicles, now $300, or increasing the fees for drivers’ licenses and vehicle registrations.
But lawmakers in the Republican-controlled S.C. General Assembly find it difficult to raise taxes, fearing the reaction from their most conservative constituents.
The last time South Carolina’s gas tax was increased in 1987.
Leatherman was the floor leader pushing that gas-tax hike. “That didn’t hurt me one bit,” he said Thursday, adding South Carolinians are ready for the state’s roads to be fixed.
‘Not do a Band-Aid’
Simrill is working on a plan that would reduce the state’s gas tax to 10.75 cents a gallon but add the state’s 6 percent sales tax to fuel at the wholesale level, a cost that would be passed on to drivers in the form of higher gas prices.
He also wants to give nearly half of the state’s 41,000 miles in roads to counties to maintain. Counties, who say they don’t have the money to maintain those roads, oppose that idea.
Leatherman said he would like for the House to act soon on a roads proposal, noting tax proposals must originate in that body.
“I’ll push any plan that I think is good for our state, any plan that I think will solve the problem,” Leatherman said. “But ... I want to solve the whole problem and not do a Band-Aid or a piecemeal approach to it.”