COLUMBIA — Seniors could get bigger property tax breaks based on how long they’ve lived in South Carolina under a bill the Senate unanimously advanced this week.
Still pending is a plan to cut income taxes for some residents, which the House passed last year. The Senate will return to that bill Tuesday, likely with debate centered around whether the Senate’s version should go even further than what the House passed.
Senators agreed with the House’s intention of lowering the state’s income tax rate to make it appear more competitive and eventually eliminate it altogether. Not to be outdone on tax cuts, however, Senate Finance Committee Chairman Harvey Peeler proposed slicing property taxes for seniors as well.
Since 2000, homeowners who are 65 and older, blind or permanently disabled haven’t paid property values on the first $50,000 of their home’s value.
Under the bill senators advanced Wednesday, anyone 65 and older who has lived in the state for 10 years or more could receive a break on taxes for the first $150,000 of their property’s value. Those living here for at least five years would pay taxes only above the $75,000 value, and anyone else over 65 could continue to claim the $50,000 Homestead Exemption already allowed in state law.
“The longer you stay, the longer you gray, the longer you get credit and are rewarded for staying,” said Sen. Luke Rankin, a Myrtle Beach Republican.
Property taxes go to counties, not the state, to fund local government services. But under the Senate’s tax cut plan, the state would cover the difference to keep from burdening communities that rely on those funds.
The plan a committee approved, which expanded the tax break to $150,000 for residents of the state for five years or more, would have cost the state an additional $259 million to cover. The final estimates for the changed version of the bill were not available Friday, though the amount will likely be similar.
Property taxes are generally the No. 1 complaint senators hear from their constituents, several said during the debate.
Keeping homes affordable is even more of a concern as more people move to South Carolina, increasing demand for places to live. Housing developments have sprung up across the state to accommodate an influx of new residents.
Many of those new residents are retirees. Senators needed to balance the needs of longtime residents on fixed incomes with the risk of incentivizing those older than 65 to move just for the tax breaks, burdening the state’s health care system without bolstering its workforce, said Senate Minority Leader Brad Hutto, who proposed the graduated scale.
“We’re saying to future over-65-year-olds, ‘You’re welcome to come to South Carolina, but you’re going to have to pay a little bit more for those first few years that you’re here,’” the Orangeburg Democrat said.
Seniors aren’t the only ones who might struggle to afford property taxes, some senators said.
Sen. Sean Bennett, R-Summerville, proposed a similar exemption in property taxes for people between the ages of 18 and 30 to help the younger generation buy property as part of a sweeping amendment to the bill.
“If there is a class of citizens that is most harmed by our existing tax policy, it’s our young people,” the financial planner said.
The debate featured a wide range of possible tax changes.
Senators discussed possible changes to corporate taxes and sales tax exemptions. They contemplated changes to caps on how much property taxes can increase based on how much their value increases during regular assessments. Some proposed opening up the Homestead Exemption to all South Carolina residents, reducing how much people pay in property taxes across the board.
Bennett likened tax cuts to a game of Jenga. Players can pull out a few of the tightly stacked pieces, but by the time they’ve removed a dozen or so, the tower starts to totter and fall.
Each time legislators change a piece of the tax code, it makes the whole thing more precarious, Bennett said. Passing only a property tax or income tax cut without adjusting other aspects of the law could send the tower tumbling.
“That, folks, is what our tax code looks like right now,” Bennett said of his metaphorical teetering Jenga tower.
In the end, however, none of those proposed changes passed. Senators kept the bill limited to only property taxes for older South Carolinians, with the promise of discussing further tax changes later this year.
A committee, with Bennett as the chair, will look at more sweeping changes to the state’s tax policy, said Senate Majority Leader Shane Massey.
“That will be part of the conversation they consider,” the Edgefield Republican told reporters. “Who do we want South Carolina to be in 20 years? And then what kind of tax policy do we need to do now in order to make that happen?”
Small business taxes
Other tax cuts could be on the horizon. As the Senate debated the property tax cut, the House unanimously advanced a bill that would give small businesses tax breaks on their equipment.
Any business with fewer than 100 employees or that brings in less than $10 million annually would not have to pay property taxes on equipment valued at less than $10,000.
That would mean a small mom-and-pop shop would no longer have to pay annual taxes on their computers or furniture, for example, said Rep. Brandon Newton, the bill’s sponsor.
Small businesses will probably buy new, better furniture and upgrade their computers more frequently if they don’t have to annually pay taxes on their depreciating value, Newton said. That will in turn mean more money going into local economies, he added.
“All of us, we know the mantra of, ‘Small businesses are the backbone of our economy,” the Lancaster Republican said. “We hear that, but this is a great way to show that.”
Under the law as is, small businesses have to total up the value of all of their property, no matter how small, said Rep. John McCravy. For a staff of only a few people, that can be unnecessarily time-consuming and pricey, he said.
“This is an onerous tax,” the Greenwood Republican said.
As legislators consider such sweeping cuts to taxes, though, some wondered how the state will make up hundreds of millions of dollars in lost revenue.
“Is there any fear that the sheer volume of property taxes and personal taxes that we’re taking out of the system will be a significant shock to not only municipalities but to other local governments and, as far as it goes, to state government?” asked House Assistant Minority Leader Roger Kirby, D-Lake City.
The cut for small businesses was comparatively small, Newton replied. The cuts will cost the state an estimated $1.7 million and local governments about $9 million, according to the state’s economic analysts.
The overall package will become a larger discussion when the House actually takes up the property tax bill, Newton said.
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