South Carolina Governor Proposes Optional Flat Tax, Cigarette Tax Hike

December 21, 2007

Since taking office, Governor Mark Sanford of South Carolina has sought to cut his state’s income tax, which tops out at a 7 percent rate. Yesterday, he unveiled a proposal to offer residents the option of sticking with the current code, or paying a 3.4 percent flat tax, with no exemptions or deductions.

He estimates the revenue loss would be $107 million, which he proposes to make up by increasing the state tax on cigarettes from 7 cents to 37 cents. According to the Governor, it’s a step to increase South Carolina’s competitiveness and bring about sound tax policy:

This is about beginning a long-overdue conversation in South Carolina about the way we tax and about the need to simplify our tax structure. To that end, we’re making this proposal as a way of starting that conversation and as a way to take a meaningful step in that direction.

Sanford has tried reforming the state income tax several times since taking office:

In 2003 Sanford supported raising the cigarette tax to cover Medicaid costs, while advocating gradual reductions in the top income tax rate from 7 percent to 6.5 percent in the first five years, and then to 5 percent over the next 10 years. In 2004 he supported a proposal to reduce the income tax rate to 4.75 percent over 10 years. The proposal passed the House, but was killed by a seven-hour filibuster by Senate Democrats. A similar measure approved by the House in 2005 was scaled down by the Senate to a reduction in small business taxes, which Sanford signed, while vowing to return the next year “asking for what the Senate ultimately didn’t give you this year.”

In 2006 Sanford proposed an income tax rebate and limiting state spending to population growth plus inflation with a referendum similar to Colorado’s Taxpayer Bill of Rights, also known as Amendment 1. But lawmakers were more interested in property tax relief that year, and Sanford ultimately signed a bill raising the sales tax by 1 percentage point to pay for a partial property tax exemption for owner-occupied homes and a reduction in the tax on groceries.

While we’ve criticized (most recently yesterday) the soundness of raising cigarette taxes for general revenue needs, the flat tax plan is an intriguing one, and hopefully it will generate a good discussion about tax policy in the Palmetto State.


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