An S.C. House committee combined an income-tax cut proposal Thursday with a plan to raise money to fix the state’s crumbling roads, giving South Carolina three road-repair plans.
The House plan could emerge as the “just right” porridge as lawmakers try to stir up a road deal.
Another plan — Gov. Nikki Haley’s tax-swap proposal — is too hot, legislators say, adding the state can't afford the income-tax cut that the Republican governor wants. The third plan — the Senate’s — is too cold, without enough support to survive a Haley veto.
That leaves the House proposal as possibly the middle ground.
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The three proposals have been offered as solutions to the $1.5 billion-a-year shortfall in the money needed to maintain, repair and expand the state’s road, bridge and mass transit system, according to the state Transportation Department. Just to pay for maintenance and preservation of the state’s existing roads and bridges would require an extra $1 billion a year.
The House plan, sponsored by state Rep. Gary Simrill, R-York, would raise roughly $427 million a year.
That plan would increase the state gas tax by the equivalent of 10 cents a gallon and the state’s maximum sales tax on vehicles to $500 from $300. After Thursday’s action by the House Ways and Means Committee, the House proposal now also includes an income-tax cut that would save the average taxpayer $48 a year.
That’s far less than the tax cut that Haley has said she wants in return for supporting a roads deal. But legislators and others say Haley’s proposed tax cut would wreck the state’s general fund budget.
“(The House’s proposed tax cut) keeps the health and viability of the general fund to be able to pay our bills for the state,” said Rep. Brian White, R-Anderson, who crafted the House’s tax-cut proposal.
Haley unveiled her proposal during her State of the State address in January. She proposed swapping a 10-cent-a-gallon increase to the gas tax, to be phased in over three years, for a 2 percentage point reduction to the state’s top-end 7 percent income tax, to be phased in over 10 years. Her plan would raise an average of $353 million a year during the next 10 years.
But critics say Haley’s proposed income-tax cut would reduce state revenues by $1.8 billion a year, when fully implemented in 2025, forcing cuts in state spending on education, health care and law enforcement.
Haley has said the cuts would be offset by natural growth.
But state Treasurer Curtis Loftis diplomatically questioned that statement in a March 9 letter to White and House Speaker Jay Lucas, R-Darlington, urging them to give “careful consideration of the proposal in its current form.”
If Haley’s proposal passes, the state would need to develop a comprehensive, convincing plan to cut its spending – including for education and public safety, Loftis said, adding, “The state’s ability to make a compelling case would likely be ... difficult.”
Haley’s proposed tax cut also would affect the state’s ability to pay for other obligations, such as spending more on poor schools after a recent state Supreme Court decision, or responding to a natural disaster, Loftis warned.
Finally, the agencies that oversee South Carolina’s top-notch AAA credit rating would not like the tax cut, Loftis added. “It is likely that the rating agencies would view the reduction in the income tax and the resulting drawdown of general funds available for expenditure as a credit negative.”
Haley talked two weeks ago to two credit-rating agencies – Moody’s and Standard & Poor’s – about the impact of her proposed income-tax cut. If the state cuts taxes, the credit-rating agencies will want to see state spending “shift” as well, she said last week.
Protecting the state’s credit rating, which determines the cost of future borrowing, is incredibly important, Haley spokeswoman Chaney Adams said Thursday.
That, she added, “is why Governor Haley got on the phone with credit-ratings agencies just days ago, and in doing so, came to understand that there will be no issue in South Carolina giving more money back to the taxpayers as long as we control our spending at the same time.”
House members, however, are skeptical.
While Haley’s proposal was introduced in the House by state Rep. Tommy Stringer, R-Greenville, it has not moved. Instead, the House has focused on Simrill’s plan, while Haley and legislators have exchanged barbs over hygiene and middle-school theatrics.
Meanwhile, state Sen. Ray Cleary, R-Georgetown, has pushed a proposal to increase several user fees and taxes to raise roughly $800 million a year for roads. His plan includes a 12-cent-a-gallon hike to the gas tax over three years and increasing the cap on the state’s sales tax on vehicles to $600.
But Cleary’s plan is held up in the Senate after a senator placed an objection on it, a move that can doom a proposal in that body.
White anticipates moving forward the House bill, including his income tax cut. But, he added, some proposals in Cleary’s Senate proposal – including adding a fee on electric and hybrid vehicles — could be added to the House plan.
The House likely will take up its proposal when members return to Columbia in mid-April, after a two-week break.
On Tuesday, Haley sent letters to House and Senate leaders, vowing once again to veto both their road-repair plans.
White said Thursday the Legislature could override that veto. “If we’ve got a good enough bill, we will.”
How to repair the state’s crumbling roads?
Gov. Nikki Haley’s plan
Money raised: An average of $353 million a year for the next 10 years for roads
Tax hikes: Increase the state gas tax by 10 cents a gallon
Tax cuts: Reduce the state income tax by 2 percentage points — from 7 percent to 5 percent over 10 years
Status: The plan has been introduced in the S.C. House by Rep. Tommy Stringer, R-Greenville. But it is going nowhere; the House has moved forward with its own plan.
Money raised: Roughly $427 million a year
Tax hikes: Increase the gas tax by the equivalent of 10 cents a gallon, increase the maximum state sales tax on vehicles to $500 from $300
Tax cuts: Adjust the state’s income tax brackets, saving the average taxpayer $48 a year
Status: The full House will debate the bill when members return to Columbia in mid-April after two-week break.
Money raised: Roughly $800 million a year
Tax hikes: Increase the gas tax by 12 cents a gallon over three years; increase fees for 10-year driver’s licenses to $50 from $25; levy a $60 fee on hybrid vehicles every two years and a $120 fee on electric vehicles; increase the cap on the state’s sales tax on vehicles to $600 from $300; increase vehicle-registration fees, paid every two years, to $40 from $24 for residents under 65 years old.
Tax cuts: None
Status: A senator has placed an objection on the bill, holding it up; senators voted Thursday against making the bill a top priority for debate.
How much is needed for roads and bridges?
$1.5 billion a year more to maintain, preserve and expand the state’s road, bridge and mass-transit system, according to the S.C. Transportation Department
$1 billion a year is needed just to maintain and preserve the existing road-and-bridge system
$800 million: The amount the Senate’s proposal would raise each year
$427 million: The amount the House’s proposal would raise each year
$353 million: The average amount Gov. Nikki Haley’s proposal would raise each year