2006 Tax Swap Draws Ire of Business Groups

Last summer, plenty of sensible people correctly criticized the South Carolina legislature for enacting an unnecessarily expensive, poorly targeted "tax swap" that cut homeowner property taxes and hiked the sales tax. The property tax cuts were "poorly targeted" in two important ways. They were too generous in that they were given to even the wealthiest homeowners, and too stingy in that they offered nothing-- zero, zilch, bupkus-- to businesses. When the revenue loss was made up by a tax that hits businesses too, you can understand why they'd be mad.

Well, the Chamber of Commerce is mad. But they say that Governor Sanford's new plan to cut income taxes by over $200 million could help make it all better.

The lesson? Big tax cuts that exclude an entire category of taxpayers, such as the homeowner property tax cuts of 2006, leave the other shoe hanging, and that shoe has to fall. The already-enacted 2006 tax cuts were bad enough from the perspective of tax fairness. But the worst legacy, by far, of the 06 cuts would be the passage of high-end income or business tax cuts in 2007 as "payback" for businesses left out of the 2006 bonanza. So we may not know for some time just how unfair the 2006 tax swap will have made the South Carolina tax system.