Two major reform items moved through the House this week as conservatives approved historic changes to shore up our retirement system and began hearings on our comprehensive tax reform plan.
The first item was an overhaul of the state retirement system, a move that will save taxpayers $8 billion over the next 30 years while slicing more than $2 billion from the retirement system’s deficit. These changes ensure the system will be there for state retirees – workers like police and teachers – while also ensuring the state retirement system doesn’t become a black hole for taxpayers.
The changes made to the plan include:
- Employees must pay one percent more out of their paychecks, with an additional one percent from the employers.
- Employees must pay more money to buy “service time” to retire early.
- Employees cannot use vacation days, sick days or overtime pay to calculate retirement
- Benefits will be calculated using the last five years of salary, instead of three.
- New hires must work 30 years before they are eligible for retirement, up from 28; police officers and firefighters can still retire after 25 years.
- New hires are not eligible for the TERI program, which allows workers to retire and then return to work while collecting benefits.
- Lawmakers may not retire and draw benefits while still serving in the Legislature.
The changes would affect all of the more than a half-million members of the state retirement system and the police officers retirement system. Our retirement system faces serious long-term problems, and we were proud that Republicans and many Democrats joined with many of the state’s employees and retirees in coming up with a solution that requires shared sacrifice.
Nevertheless, some Democrats tried repeatedly to keep the status quo in place, despite the future negative cost to taxpayers and huge potential negative impact on state finances.
Also this week, members of the House Ways and Means Committee began work on the Caucus Tax Reform package so we can get the bills to the Senate in time for that body to pass the plan before the end of session.
The bills that moved out of subcommittee this week were:
- Flatten the income tax. Collapsing six tax brackets (0, 3, 4, 5, 6, and 7 percent) to two (3, 7), which gives 4 out of 5 South Carolinians a tax cut or no change in their liability.
- Slash small business “active income tax” rate. We slash the rate they pay from 5 to 3 percent so they can invest in, and grow, their businesses.
- Cut the business property tax rate from 10.5% to 6%. The top business property tax rate is a problem for businesses of all sizes. The 10.5% rate is an obstacle in recruiting major manufacturers. It’s a problem for medium-sized businesses trying to expand without the political power to get exemptions. It also hurts small businesses with expensive equipment – such as small manufacturers, construction companies, and companies with large technology investments. The net revenue reduction is approximately $56 million.
- Drop the property tax assessment rate on commercial and rental property from 6% to 5%.