Making a Case for the Income Tax Cut

Tax revenues in the state continue to be lower than desired and politicians from both parties are making efforts to find a solution. So, one must ask if Governor Mark Sanford’s plan to reduce the income tax will help the situation. As it turns out, it does just that.

There are currently three major plans to improve the current revenue situation. The first solution proposed was to increase revenue by additional taxation. The major problem with this is the current economic situation. Over the past five years South Carolina has lost over 3,700 small and medium sized businesses, net. An increase in taxation decreases money the taxpayer has to save, spend, and invest in the economy. Those planning and dreaming of creating their own business will be deprived of an essential tool to do so—money. It is conceivable that increasing taxation may actually decrease revenue growth. Right now the economy is on a large diet. If we deprive it of any more of its food—money—it may starve.

A second solution to our revenue woes is to let things be and hopefully correct itself. However, there are several flaws in this line of reasoning. One is the present problem of losing small business while neighboring states show increases. This is caused by an income tax that inhibits economic growth—a problem that will not correct itself. Another flaw is the track record of this plan as it has been used in the past few years. We have done nothing to correct the problem, and the problem is still there. Logic dictates that something must be done. We can not stand still and we can not raise taxes. To do either would reduce our ability to succeed. So how, one must ask, can cutting the income tax help?

As stated by Dr. Vedder, the nations leading researcher on the topic, there is a distinct relation between a low income tax and a developing economy. The state of South Carolina, however, does not have a low income tax. The Governor’s analysis of the state shows that our income tax is the “prime inhibitor of economic growth.” Furthermore, it shows a correlation between job growth and income tax of neighboring states. Florida, for instance, has had an increase of over 35,000 small businesses with their 0% income tax. Comparing this to our net loss of over 3,600, the decision should be a simple one. It was for the states of Hawaii, Maryland, Massachusetts, Michigan, North Carolina, Oklahoma, and Rhode Island who lowered their income taxes in 2002. To increase state revenue, improve the economy, and upgrade our quality of life, the decision must also be made here in South Carolina.