The House of Representatives Tax Policy Review Committee reconvened last week for its second meeting of 2017. The committee last met in June to hear a presentation on the rollout of the newly passed highway infrastructure funding plan. This fourteen member ad hoc committee was created last year by Speaker of the House Jay Lucas and is responsible for reviewing South Carolina's current tax code and submitting suggestions for reform to the Speaker. While there was initially some thought the committee might finish its work last fall and propose recommendations to the Speaker of the House prior to the start of the legislative session, the committee agreed to take a break during the highway funding debate. Chairman Tommy Pope (R-York) told the committee at the time they would resume work at the end of the summer and meet this fall in an effort to find ways to make our tax code lower, fairer and flatter. All options remain on the table, including removal of some $3 billion in sales tax exemptions.
The committee heard a presentation last week from Dr. Rebecca Gunnlaugsson with the Palmetto Promise Institute. Dr. Gunnlaugsson is an economist specializing in public finance, with experience in strategic planning. Her presentation was titled "A Practical Plan for Tax Reform that Creates Equity, Stability and Growth". In it, she explained the cause and effect of South Carolina's tax code including the eroding tax base, higher tax rates and unequal taxes. She noted this infinite loop is not fair, not sustainable and does not produce growth. Her presentation highlighted the disparities in income tax, property tax and sales taxes. With a growing and aging population, combined with a competitive disadvantage with neighboring states, she recommended lawmakers act boldly and wisely to bring stability and fairness to our tax structure.
Specifically, she proposed a bold plan to be phased-in over 5 to 7 years. On income taxes, the plan that would flatten the income tax rate to 5% and include standard deductions. On property tax, the plan would repeal Act 388 to level property tax rates, implement a statewide minimum school millage and reduce exemptions favoring certain taxpayers over others. On sales tax, her plan proposes broadening the base to include exempted goods and services, reduce the statewide sales tax rate to 3% and cut local tax rates.
The Committee decided last week to move forward in drafting legislation that would lower taxes and broaden the tax base. The committee will work through the fall testing these concepts in a new and innovative tax modeling program that was developed in concert with the Palmetto Promise Institute. The modeling will allow the committee to instantly see the implications of various scenarios and make alterations as needed. The goal is to finalize the proposed tax reform legislation by the start of the legislative session in January.
Since next year will be the second year of the two year legislative session, it will be difficult for such a comprehensive plan to pass both bodies and be signed into law. Additionally, next year is an election year and lawmakers have numerous other major issues facing them including the state budget, reform of the state retirement system and the fallout from the SCANA and Santee Cooper nuclear facility decision. We will continue to monitor the progress of the committee and report on the next meeting.
To view the presentation, click here.