South Carolina's flat tax proposal would initially raise rates for most

Associated Press

01-04-2025

COLUMBIA, S.C. (AP) — In the state battles to adopt the lowest and most attractive tax policies, South Carolina Republicans are making an interesting gambit: they want to raise income taxes for about 60% of filers in 2026.
Supporters say it's short term pain for the long term gain of establishing a flat income tax rate. To get there, some of the state's most heavily taxed people would get a significant cut as the state's top 6.2% rate drops next year to 3.99%.
The eventual goal is to slash that flat income tax rate to 2.49%, a level authors of the plan say would mean three out of four taxpayers would pay less than they do now. It's a rate lower than even taxpayers on the bottom rung currently pay. However, reaching that objective would take several years and each downward tick in the tax rate would depend on the state seeing significant economic growth.
Legislation proposing the changes advanced Tuesday to the House Ways and Means Committee. The goal is to get the bill through the House next week and on to the Senate. Republican Rep. Brandon Newton called it a 'conservative revolution' when it comes to income taxes.
'It's all about fairness,' he said. 'We should have a simple tax system that is flat, fair and that everyone takes part in. We should not have a progressive income tax system where a group of the population is paying the entire tax while another is not.'
Democrats were still processing the proposal Tuesday, but were alarmed that initially taxes would be raised on 60% of people in the state — many of them middle class — especially without a firm time set to bring them back down.
'I am real nervous about what we are going to find out later went into paying for this tax cut,' said Democratic Rep. Gilda Cobb-Hunter.
number of states, especially in the South, are looking to cut taxes, with each striving for the lowest rates.
Georgia and Kentucky are looking at smaller income tax reductions paid for with extra revenue from their booming economies.
Mississippi is eliminating its state income tax over more than a decade and increasing gas taxes. Louisiana's income tax cut is based on a sales tax increase.
However, North Carolina's Democratic governor is suggesting pausing his state's planned income tax cuts because of the economic uncertainty surrounding the impact of President Donald Trump's policies.
Republicans in South Carolina have been nervous about how the state's tax rate looks compared with its neighbors for years. The state computes taxes based on federal adjustable tax income, which makes the rate look higher when compared with most states that use adjusted gross income.
Newton said South Carolina's plan was the best of all worlds, emphasizing that when economic growth triggers cutting the income tax rate to 2.49%, nearly four out of five taxpayers would pay less.
'This is a simple cut for the hard working taxpayers of South Carolina, not swapping it for another tax,' Newton said.
Cobb-Hunter said the rush to cut taxes everywhere is dangerous.
'I'm troubled by this notion we've got to out tax relief North Carolina and Georgia and all these other Southern states. I don't think we should willy-nilly be talking about providing tax relief giving the uncertainty of the economy,' she said.
South Carolina's Republican governor and House and Senate leadership held a press conference on March 25 announcing the flat income tax proposal. But details were sparse until late Monday, when the state Revenue and Fiscal Affairs Office released its analysis of the plan.
It found that the majority of taxpayers in seven different income bands ranging from $10,000 to $150,000 would pay more, with the average increase somewhere between about $300 and $800.
Most of the impact comes because the state currently has a top income tax rate of 6.2% and a bottom rate of 3%, although about 1 million taxpayers currently pay nothing. Backers of the Republican tax plan want those people to pay something.
Republican Gov. Henry McMaster told reporters Tuesday that he supports a 'broad, flat, simple-to-understand low tax. Everybody ought to pay something — a little something.'