The South Carolina General Assembly (both the House and Senate) put cutting state taxes front and center on their agenda for the last two weeks in February.
Now that our state legislature has more money available for our 2022 budget, as I noted in my column last month, Republicans in the House and Gov. Henry McMaster are looking to push a larger tax cut for South Carolina residents than originally planned.
Our revised plan is to trim the top state income tax rate from 7% to 6.5% and down to 6% over the next few years – a move that would save taxpayers $600 million this year. It would also lower the tax rates of those currently paying 4%, 5% and 6% to just 3%.
As the Governor said, “This proposed tax cut will be a pay raise for everyone who is working for a living. It will start an avalanche of change for prosperity here unlike anything we have seen, and add one more reason for South Carolina to have great success in the future.”
Indeed, the time is right for a tax cut that many have been advocating over the past decade. Growth is clearly evident in every sector of our economy – and not just from the federal stimulus. Our state Board of Economic Advisors reports that we now have $4.6 billion to distribute instead of the $3 billion that was estimated last November. This gives us the opportunity to further stimulate our economy while keeping taxpayers’ money in their pockets.
Some will claim our income tax rate of 7% is higher than other states, but the reality is that most South Carolinians – in particular retirees – enjoy lower taxes than residents of most other states. This is because most other states tax adjusted gross income (AGI), which is Line 11 on your federal tax form, showing income such as wages or capital gains minus adjustments to income.
However, here in South Carolina our “taxable income” (Line 15) has been further adjusted downward to reflect the federal standard deduction or itemized deductions. This makes our starting point a much smaller amount of money than where other states start. This leads to a much lower “effective rate” even if our top marginal rate appears high.
Currently South Carolina’s “average effective rate” of 3.1% is the 10th lowest in the U.S.A. Moreover, The Kiplinger Report just last month named South Carolina as the “6th most friendly” tax state for retirees in America.
In February both the House and Senate passed their versions of spending about $1.7 billion worth of the American Rescue Plan Act (ARPA) money. The two plans are similar with some slight differences. For example, the House plan provides $100 million to fight flooding and $400 million to expand broadband into rural areas. The Senate plan does not. Both plans do want to spend $450 million to jump start highway projects like widening I-95 here in the Lowcountry.
Jeff Bradley is the representative for District 123 in the State House of Representatives.