Facing hundreds of millions of dollars in state revenue shortfalls, more than 100 legislators at the State House, Republican and Democrat, have banded together to back an election-year economic development bill that includes a notable tax cut.

The recently submitted Economic Development Competitiveness Act (H. 4478) has been billed as an attempt to re-till the economic soil of a state that has the fourth-highest unemployment rate in the country and is saddled with a governor oft-criticized for lackluster economic development efforts.

Championed most loudly by House Speaker Bobby Harrell (R-Charleston), the bill focuses on a laundry list of economic development efforts — from investing in nuclear power and amending a point-of-sale real estate tax to better defining the role and make-up of state review boards.

It also includes a provision that would do away with the state’s five percent corporate income tax over a 10-year period in half-percentage-point increments beginning in 2011.

Critics say the tax cut might make sense politically, but not fiscally. They see similarities in the proposed corporate tax cut to Act 388, which shifted funding of public K-12 education from taxes on primary homeowners to a vulnerable reliance on state sales taxes. Popular when first passed, Act 388 has since been perceived as a strangler on the state’s General Fund budget as the economy has slipped into recession.

Harrell spokesman Greg Foster says that by taking care of the state’s current businesses and attracting new companies and investment, the state would create more jobs.
But Holly H. Ulbrich, an economist at the Strom Thurmond Institute at Clemson, said including the tax cut would be something quite different.

“It would be utterly foolish to get rid of the corporate income tax,” Ulbrich said. “We need every dollar we have to go into social services and education.”

Ulbrich conceded the current corporate income tax didn’t bring in a lot of money — the state’s current estimate is $168 million this year.

“But that’s not nickels and dimes,” Ulbrich said.

Ulbrich said if companies were going to locate or expand here and make use of the state’s roads, safety divisions, education and other amenities, “it’s not unreasonable to ask them to pay something.”

Ulbrich also doubted the effectiveness of a reduced rate as a corporate lure, citing that among states that do have corporate income tax, South Carolina isn’t too far ahead or behind the others.

Foster disagreed vehemently.

“If it’s not such a big deal, then why are corporate income tax breaks part of every package the Department of Commerce puts together?” asked Foster, rejecting the election-year jab.

State Sen. Phil Leventis of Sumter, the ranking Democrat on the Senate Finance Committee, slyly agreed with Foster on one point.

“This bill is not election-year politics, it’s election-year populism,” Leventis said. He said legislators backing the bill might be more concerned with offering a pleasing platform to their constituents than creating a stable tax base from which the state could move forward.

According to Leventis, getting rid of the tax won’t change the competitive battle between South Carolina and other states for new businesses. North Carolina, argued Leventis, has several higher tax category rates but has done better in attracting corporations than South Carolina because it has viewed taxation as an investment in educating its workforce. That has resulted in successes in the Tarheel state where public seed money has helped grow jobs and industry magnets such as the Research Triangle.         

Taking a page from his frequent political enemy, Gov. Mark Sanford, Leventis said the bill would swap real tax relief for something less tangible or useful in the state’s current economic situation.

“It’s a swap for the hope for, or the promise of, new business,” Leventis said.

Foster countered by saying any losses from the proposed tax cut portion of the bill should be more than offset by an expansion of the state’s tax base via payroll and commercial property taxes.

Crystal ball: This bill will sail through. Here’s why: Bipartisan support of the bill likely represents Democrats acknowledging the coming election will belong to the Republicans. As such, to protect their seats, always a looming incentive in an election year, opposing a “jobs” bill could hand an indefensible cudgel to an opposition party opponent. 


Bill Davis is the editor of SC Statehouse Report; he can be reached at editor@statehousereport.com. Let us know what you think: Email news@free-times.com.