South Carolina: Breaking New Ground on Property Tax Reform

South Carolina senators continued their never-ending debate over how best to achieve property tax reform last week--and finally threw in the towel until early May. While much of the debate was familiar-- anti-tax lawmakers continue to muddy the waters by insisting that the only way to prevent Palmetto State families from being taxed out of their homes is to completely repeal the school property tax-- one interesting development is a plan that would create a big and bold property tax circuit breaker.

South Carolina is one of the few states without a circuit breaker of any kind-- but this proposal would go from zero to 60, rebating all property taxes exceeding five percent of a homeowner's income for anyone earning less than $40,000. The proposal was in an amendment that got rejected, but you can read the text in the Senate's journal here.

There are design issues to complain about here-- no relief at all for renters, and five percent is probably too high a threshold to be really effective for low-income homeowners--but a circuit breaker that has no cap on the allowable credit would be unprecedented. Every circuit breaker in existence has a maximum credit amount-- this one apparently doesn't.

Circuit breakers always give property taxes a little hint of the "ability to pay" principle that income taxes implement so well, so adding a circuit breaker amounts to changing the property tax to more of a hybrid property-income tax-- but an uncapped circuit breaker is a bold attempt to precisely define the limits of a homeowner's ability to pay, basically asserting that no low-income South Carolinian's property tax should EVER exceed five percent of their income. It would make the South Carolina property tax a lot more like a (flat-rate) income tax.

This would be expensive, although certainly less so than the other proptax reform solutions being thrown around the Palmetto State. It would be potentially hard to administer, since you need to know each family's total income as well as their total property tax to decide whether they get it. And it would arguably be better to save a little money by putting a cap on the allowable credit and then lowering the %-of-income threshold for low-income taxpayers to something less than 5%. But this is a promising step.