Politics & Government

House passes business booster plan

The House on Thursday approved an economic development plan that eliminates state income taxes on corporations and provides tax credits for small businesses, among other initiatives.

Supporters say the 104-page bill, which has many moving parts but passed the House easily 105-9, will draw companies to the state and create jobs.

The tax breaks for business come at a time when public- and private-sector jobs are few, state coffers are dry and the Palmetto State can hardly pay all its bills.

House Speaker Bobby Harrell, R-Charleston, pushed the bill, which was advertised as House Republicans' No. 1 priority for 2010, though its fate in the Senate is uncertain.

"We landed a giant by bringing Boeing to South Carolina," Harrell said after the vote, referring to the aircraft maker's decision in October to bring a new assembly line to the Charleston area.

"Our state's future hinges on the strength of our economy and the private sector's ability to grow and create jobs."

With unemployment above 12 percent and state economists predicting no real change in joblessness at least through 2010, Harrell said the economy is the biggest issue facing the state for the next 20 years.

If the plan becomes law, South Carolina will become the fifth state to eliminate corporate income taxes, behind Nevada, South Dakota, Wyoming, and Washington, which lost the Boeing assembly line to South Carolina.

The state collects $167 million yearly in corporate income taxes. That 5 percent tax rate yields the third largest source of state taxes behind sales and individual income taxes.

Beginning in July 2011, the state would cut $16.8 million from those collections and phase out the tax entirely over 10 years.

Measured against the state's looming $500 million shortfall this year alone and a projected $1 billion shortfall next year, initially losing $16.8 million might not otherwise be considered a budget buster.

"This is a tax reform that will allow businesses to put their money back into expansion and job creation," said House Majority Leader Rep. Kenny Bingham, R-Lexington. "The income tax repeal will take a while to phase in, but it will provide fuel as our state economy continues to recover."

While the bill, which also features tax credits for alternative energy, had widespread support, with 107 sponsors originally, not everyone was pleased with every facet of the legislation, particularly the corporate income tax cut.

Rep. Nikki Haley, R-Lexington, a candidate for governor, pleaded for more time to study the bill before voting on it, moving to table it until next week. That motion failed.

Rep. Bakari Sellers, D-Bamberg, also wanted more time, citing the Thursday afternoon "mistake" he said the House made when it rushed through the controversial property tax relief bill known as Act 388.

Rep. Joe Neal, D-Richland, said the state already depends too much on sales taxes and personal income taxes to do its business, and it is not working.

"There are over $2 billion in cuts already on the books for corporations, yet we still want to give them more," Neal protested. He said lawmakers were passing a bill hoping corporations would "rush to our borders." Those who need more help, and deserve more help, Neal said, already are here in the form of small businesses.

"This is throwing a rock in the dark and hoping it hits the target," he said.

Rep. Laurie Funderburk, D-Kershaw, who said she was in favor of the legislation overall, also had some concerns.

"With this, we will again treat corporations better than we treat people in our own districts - small businesses," Funderburk said. "I have not had the first corporation to come to me and say they needed their corporate taxes eliminated."

Rep. Walt McLeod, D-Newberry, said the plan had merits, but also a fatal flaw, and warned lawmakers the tax cuts - South Carolina already has the lowest corporate income tax rates of any state in the Southeast, he said - would do harm to local governments, who, in turn, would look to lawmakers to place blame.

"The revenue stream in our state in is deep, deep, trouble," McLeod said, previewing upcoming cuts in the state budget that are expected to be debated on the House floor beginning March 15, a day the Legislature does not typically meet. McLeod's suggestion? "Eliminate the corporate tax cut entirely," he said.

McLeod's amendment to exclude the income tax cut from the bill also was defeated.

Rep. Harry Ott, D-Calhoun, the Democratic minority leader, said he supported the bill for the good that is in it. "I believe this is a step in the right direction in South Carolina," Ott said, noting the bill strengthens the Rural Infrastructure Bank and increases fees in lieu of taxes.

"No piece of legislation is perfect," Ott said.

Rep. Ken Kennedy, D-Williamsburg, who originally opposed the bill, touted it in the end, in part, he said, because it would give a tax credit to small businesses such as his, with five employees, if he increases its hired staff to six or more.

"I think now it's a good bill," Kennedy said. "We have now reached out to the small-business community."