South Carolina Senators will convene in Columbia at the state capitol to take up a new state budget that includes a proposal to accelerate the gradual reduction in the state’s top income tax rate. The budget, as approved by the South Carolina Senate’s Finance Committee, would cut the top personal income tax rate from 6.4% to 6.2% for tax year 2024. This proposal builds upon a tax relief package passed in 2022, which called for yearly 0.1% reductions to the top income tax rate until it reaches 6%, subject to revenue triggers being met.
Governor Henry McMaster, who enacted the first cut to the state’s top personal income tax rate in 2022, has expressed support for speeding up the already enacted income tax cuts. Proponents of the accelerated income tax rate reduction argue that it is a way to return surplus dollars to taxpayers and is necessary in the current era of heightened state tax competition. Surrounding states have made moves to reduce and flatten income tax rates, putting pressure on South Carolina to do the same. North Carolina’s flat personal income tax rate is already lower than South Carolina’s, and Georgia recently enacted an income tax cut that will bring its rate down to 5.39%.
In addition to the current state budget surplus, $1.8 billion of unknown origin has been discovered in a flow-through state bank account. Many believe that this money should be returned to taxpayers, and legislation has been filed to that effect. A proposal to move the $1.8 billion into a special fund to provide one-time tax rebates to individuals who filed a tax return for 2023 has garnered support from 20 legislative sponsors. If enacted, this tax rebate would provide relief to many South Carolina taxpayers.
In recent years, South Carolina lawmakers have made significant strides in terms of tax relief and government reform. After enacting the historic 2022 personal income tax cut, lawmakers created an education scholarship account (ESA) program in 2023 to provide school choice for Palmetto State families. Additionally, last year lawmakers repealed Certificate of Need (CON) mandates that have been criticized for inflating healthcare costs. These actions show a shift towards a more reform-oriented red state in South Carolina.
If the new state budget is enacted with the accelerated income tax relief, it will further solidify South Carolina’s position as a reform-oriented state. Lawmakers are focusing on getting government out of the way and letting the free market drive economic growth. This approach marks a departure from the traditional way of doing things in South Carolina and signals a shift towards a more market-driven approach to governance. The move to speed up income tax cuts will be seen as another step towards making South Carolina a more business-friendly state.
