The Palmetto Insider

The blog of the South Carolina Policy Council

Haphazard Tax Change a Bad Economic Development Policy

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statehouseSouth Carolina’s piecemeal approach to government-mandated economic development was in evidence again as the Senate Finance Committee met this morning. The goal: To pick another economic development winner by amending the state’s tax code.

While legislators have been tight-lipped about the name of the target, media reports identify the company the state is pursuing as aerospace giant Boeing, which said last week it had narrowed its choice for a second assembly plant for its 787 Dreamliner jet to two locations: North Charleston, S.C., and Everett, Wash.

Chicago-based Boeing said it expects to make a decision early next month and South Carolina lawmakers are doing everything they can to sweeten the pot.

The committee discussed revising several aspects of the tax code related to sales and income tax, and bonded indebtedness. These included:

  • An amendment to a 2006 statute that would allow manufacturing companies to receive the same exemptions as technology intensive facilities provided they invest at least $750 million and create at least 3,800 jobs directly within 7 years.
  • An amendment to a 2006 statute that would accelerate the final 2 percent sales tax phase-out to Nov. 1, 2009, also for companies investing a minimum of $750 million and creating at least 3,800 jobs within 7 years;
  • An amendment to a 1951 sales tax exemption for fuel purchases by manufacturing companies that would be extended to “motive power” for test flights by manufacturers. Under the amendment, the exemption would be used by aircraft manufacturers to transport aircraft between manufacturing facilities but would not include transportation of major components parts for construction or assembly.

Additionally, an amendment for apportionment of income formulas was introduced. It would allow manufacturers to negotiate coordinating counsel in the Department of Revenue. It would also ensure that manufacturers who meet certain criteria such as those listed above qualify to negotiate their apportionment formula.

The last amendment introduced related to the issuance of economic development bonds and provides that, in aggregate, no more than $170 million in bonds may be issued at any time and clarifies that no more than $170 million in proceeds from those bonds may be used for any one project.

Finance Chairman Hugh Leatherman said that the goal is to get through first and second reading today and have the third and final reading tomorrow. The committee voted unanimously to send a favorable report to the Senate chamber.

While the Senate Finance Committee was meeting, the full Senate Judiciary Committee sent amendments to the Sine Die resolution to the floor so as to allow legislators to return to Columbia to receive and consider any economic development issues that might arise.

The Senate voted unanimously, 44-0, to amend the Sine Die resolution, while the House also gave unanimous approval, 109-0.

While South Carolina’s unemployment rate remains of great concern, revising the tax code every time a major corporation wants to look at building or relocating in the Palmetto State is impractical and inefficient.

Moreover, such proposals run counter to the goal of the Taxation Realignment Commission, tasked with the goal of studying South Carolina’s tax code in an effort to weed out disincentives that discourage new businesses and residents.

If South Carolina really wants to spur economic growth, it should look at abolishing corporate and personal income taxes — or at the very least lowering overall tax rates, if only by eliminating special-interest tax credits, as the Policy Council recommended in The S.C. General Assembly: Best & Worst of 2009.

Simply eliminating the corporate income tax would not only make South Carolina more economically competitive, it would also pressure legislators to cease playing favorites with special interest tax breaks, such as those currently being discussed by lawmakers.

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Written by Cotton Boll Conspiracy

October 27, 2009 at 2:22 pm

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