By Andy Brack
Contributing Writer

Hats off to state senators for a responsible, relatively progressive proposal to reshape the way property is taxed in South Carolina. Compared to the fiery, reactionary plan passed in February by the state House, the Senate proposal is a breath of fresh air.

It is also something that realistically could get passed.

Reactionary response

At the beginning of the session, it was clear lawmakers would do something to reform property taxes. They have been under intense pressure from a variety of citizen groups since last year.

Both chambers studied various proposals. The House ended up taking a slash-and-burn approach to try to get rid of almost all property taxes on owner-occupied homes.

How?

By raising the sales tax rate by 2 cents to 7 cents statewide. In a nod to making the proposal a little progressive, it also called for getting rid of sales taxes on groceries.

But the House proposal has a big problem: By hiking the sales tax by 2 cents, South Carolina would have one of the highest sales taxes in the country.

And if that isn’t enough to make the Palmetto State less competitive economically, a significant burden of the tax would fall on businesses.

In other words, the House plan would do a lot to help folks with high property tax bills, but it would hurt businesses that buy goods in the state and would tend to discourage investment here.

It is the policy equivalent of cutting off the state’s economic nose to spite its face.

Listening closely

So in comes the Senate, whose members don’t face grumbling voters in 2006.

During the summer, the Senate Finance Committee launched a comprehensive review of tax structures and held hearings across the state to listen to folks about property taxes.

Senators seemed to listen a little more deeply than House members, who apparently only heard, “Get rid of property taxes.” Instead, senators heard, “Adjust property taxes so that people aren’t taxed out of their homes.”

Depending on the message, you are able to come to quite different policy conclusions.

In a plan approved by a special Senate subcommittee that will be discussed in the coming week, the Senate calls for an extra half-cent to be added to the sales tax rate to generate a pool of $300 million to help offset property tax burdens.

While the Senate offers a somewhat complicated policy proposal, it can be boiled down into two parts.

Some relief for all. Two thirds of the pool of money, about $200 million, would be spent to reduce property taxes for every homeowner.

It is not clear how much that would be, but the plan essentially calls for an extra exemption to be allowed to homeowners to reduce the assessed value of a home.

In other words, if your home is worth $200,000, you might get an extra $30,000 in an exemption, which means you would be taxed on a value of $170,000 instead of $200,000.

For homeowners with modest homes, tax bills could be reduced significantly.

Circuit breaker. The other $100 million would be used to offset property taxes based on a homeowner’s income.

The most homeowners would pay in property taxes, after accounting for the relief through the above exemption, would be 5% of their incomes. After that amount, the $100 million pool would subsidize the difference.

This component of the proposal is relatively progressive because it works best for people who are cash poor and house rich, such as the person on a fixed income who lives on the coast.

“For a good number of people in South Carolina with the most modest homes, property taxes will just about go away,” said state Sen. Wes Hayes, R-Rock Hill, who chaired the Senate subcommittee that developed the proposal.

Beyond politics

If you are thinking the Senate proposal might get caught up in partisan bickering on the Senate floor, you might want to think again after listening to Senate Minority Leader John Land, D-Clarendon.

“I think this is a beautiful compromise,” he said. “Businesses should be supportive of this idea, and homeowners should be supportive. I think it is a brilliant proposal.”

Andy Brack is the publisher of the S.C. Statehouse Report (www.statehousereport.com), a forecast of business developments in the South Carolina Legislature and state government. E-mail him at brack@statehousereport.com.

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