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Gov. Haley insists SC can afford her proposal to cut personal income taxes by $1.8B yearly

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COLUMBIA, South Carolina — Gov. Nikki Haley insists South Carolina can afford her proposal to cut income taxes by $9 billion over the next decade without cutting spending.

The Republican governor said Friday the state can absorb that in surpluses as its economy grows. The past decade doesn't reflect that kind of growth, but she dismissed questions about what she would cut.

"There will be a lot of people who want to talk about spending and how we can't afford something. That's not who we are in South Carolina. That's not this administration," Haley told reporters after her Cabinet meeting. "There is more revenue. We can choose to squander it away and spend it, or we can give it back to the taxpayers."

State economic advisers predict her plan to cut the top income tax bracket by 2 percentage points would reduce revenue by $1.8 billion yearly once the 10-year phase-in is fully implemented. That's equivalent to 25 percent of her $6.9 billion spending proposal for 2015-16, released last week. Her budget doesn't account for the first year of the cut's phase-in, she said, "because we just came out with the plan."

If she had, her budget couldn't pay for her own recommended spending increases, including those for the second year of her education initiative.

Haley makes her case by looking at the last few years of post-Great-Recession recovery.

"You can't ignore the surpluses we've had," she said.

Tax collections have grown $1.5 billion since 2010. But collections next fiscal year are expected to be less than $400 million above those of 2006-07, as health care costs have climbed. Economists have said the Legislature's tax cuts of 2006 and 2007 exacerbated the budget crisis during the downturn.

South Carolina is still digging out from those deep, recession-era cuts, said Senate Minority Leader Nikki Setzler, D-West Columbia.

The state is sending public colleges $300 million less than it did in 2008. That was the last year legislators followed state law on aiding local governments. And it would take $550 million more than Haley proposes next fiscal year to fully fund the so-called "base student cost" for K-12 education, as set by a 1977 formula, according to economic advisers.

Haley's Cabinet agencies haven't fully bounced back either. For example, the Department of Social Services is trying to hire hundreds of additional caseworkers following bipartisan hearings over the past year on the agency's failures to protect abused and neglected children. Haley's budget includes money to do that. But the planned hires still won't restore child welfare staff to pre-recession levels.

The income-tax proposal is part of Haley's stipulation for supporting a 10-cent gas tax increase to fund road and bridge work.

That piece of her plan, when coupled with her budget proposal to divert $61 million from the state sales tax on vehicles, would generate roughly $400 million yearly for the Department of Transportation once fully implemented in three years. Critics say that still doesn't come close to meeting the additional $1.5 billion yearly over two decades the agency says it needs to bring roads to good condition.

Coming up with a solution for road funding will take a huge, bipartisan effort, Setzler said, and Haley's stipulations "just make it much more difficult to pass anything."

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