Will proposal help or hinder citizens in South Carolina?

The introduction of a S.C. Fair Tax Act would be a game-changer that would propel South Carolina to the top tier in attracting new jobs and industry, said S.C. Rep. Bill Taylor, R-Aiken.

He introduced the measure in March with 63 co-sponsors already on board. Taylor likes to joke that he always has his "elevator speech" prepared: "You replace the income tax - both corporate and personal - and the existing state sales tax with one new tax on all new goods and services."

Although the S.C. House won't deal with his legislative bill as the end of the session approaches, "as tax reform takes center stage, the Fair Tax will become a major part of the discussion," Taylor said.

The U.S. Congress also has Fair Tax bills in the House and Senate, but it's entirely reasonable for the S.C. General Assembly to pursue a similar measure at the state level, said Pat Dickerson, a Fair Tax advocate in Aiken who often speaks on the subject.

"We'll do it first in South Carolina," he said. "The federal versions require a constitutional amendment. If the 16th amendment (which authorizes an income tax) is not repealed, the Fair Tax would be worthless and not effective. The state would not require such an amendment."

The state bill would eliminate the scores of sales tax exemptions that lawmakers have enacted over several decades. The state collects about $2.3 billion in sales tax revenue even as it exempts items that could bring in another $2.8 billion.

"Each exemption may have had merit at one time," Taylor said. "But when you look back, the sales tax on twine was exempted back in the 1940s. So was butcher-wrapped meat. Most people understand that the exemptions are wildly out of hand. If we wipe them all out, there will be a lot more fairness."

Corporations and businesses would pay no Fair Tax or income tax; however, they include their current taxes as the cost of doing business, Dickerson said.

"You and I pay as consumers, as (businesses) collect it in the price," he said. "That embedded tax amounts to 22 cents on the dollar plus compliance costs. Corporations have people on staff to help them make good decisions on tax implications. They wouldn't need that anymore. ... With a Fair Tax, competition would rule, and that helps you and I enjoy April 15 a lot more."

The concept is not regressive for low-income people, Taylor and Dickerson contend. Every legal resident and families will receive prebates of varying amounts. Those at the poverty level won't pay the Fair Tax up to prebate amount, Dickerson said.

Taylor cited statistics from the S.C. Fair Tax Organization, that a family of four with a $146 monthly prebate would have to spend as much as $2,400 a month to actually pay any sales tax.

But the monthly credit won't be enough, said Jerrold Sundt, an Aiken resident who opposes the Fair Tax concept.

"That prebate has a number of factors that are complicated, including a sliding scale," he said. "It won't take a whole lot of purchases to exhaust that number."

As Sundt argued in a recent column in the Aiken Standard, that's because the Fair Tax extends much further in reach - taxing new homes and cars, rental house and apartments, a wide range of medically-related services and products, home heating, electricity, health and car insurance and more.

"Sounds like a not-so-good deal for individuals and families," Sundt wrote in his column. "The big problem is that we're taxing everything."

It's not voodoo economics, Dickerson said. This approach would tax people who don't pay income tax for a variety of reasons. Those participating in illegal activities don't pay taxes, neither do undocumented residents. Affluent people don't pay taxes on investments, he said.

Taylor also doesn't anticipate people heading across the Savannah River to Augusta to shop.

"I don't view that as a problem," he said. "The Fair Tax replaces the sales tax, and it will be almost equal. The governor of North Carolina said he would be concerned if South Carolina enacted the Fair Tax. Competitively, that would be an advantage for us, and North Carolina would have to respond.

The elimination of sales tax exemptions won't produce a revenue windfall. The legislation is designed to be revenue-neutral, said Taylor.

"As a conservative elected official who believes in smaller government, I'm not going to raise taxes and get more revenue," he said. "This is a fair way to administer taxes in a way that would create more jobs and influence businesses."

Sundt contends that a study of a similar Fair Tax proposal in Missouri indicated that 95 percent of residents would pay more under than plan than with combined sales and income taxes. Further, schools have suffered in recent years with their dependence on the sales tax in a tough economy. If there is another major decline, every aspect of government spending could be impacted if people stop buying, Sundt said.

People still have to live and will find a way to buy the things they need, Dickerson said. The Fair Tax is a far less volatile method of taxing than the traditional sales tax, he said.

The fair tax is only one piece of a larger tax reform need, Taylor said. Act 388 replaced property taxes for state school funding, and that needs to be reviewed, he said.

The legislature created the S.C. Tax Realignment Commission (TRAC) in 2009 to explore an overhaul of the tax structure. Lawmakers have largely ignored its findings.

"Gov. (Nikki) Haley has said she has engaged two out-of-state think tanks to help make recommendations on tax reform," Taylor said. "I view this as her own TRAC Commission."