South Carolina State Representative and Ways and Means Chairman Bruce Bannister, R-Greenville, listens as house members debate amendments to the state budget on Tuesday, March 11, 2025. Joshua Boucher jboucher@thestate.com
COLUMBIA, S.C.
As an income tax reform package moves quickly in the House, the political fight over the plan is going to center around long-term tax relief versus a short-term hike for a majority of filers.
The proposal has led to hard-line conservative House members and at least one Democratic lawmaker to question the wisdom of the approach pushed by Republican leadership that would initially lead to six in 10 filers seeing a tax hike but then lead to nearly eight in 10 seeing tax relief in future years.
The plan already has the support of the S.C. Chamber of Commerce and the Americans for Prosperity in South Carolina, which started a six-figure campaign in support of the tax proposal.
At the same time, the American Action Fund has urged opposition to the tax reform plan and called for support for a House Freedom Caucus bill calling for the complete elimination of the state income tax.
Under the tax reform proposal, the state would change to a flat income tax rate of 3.99% and use adjusted gross income to calculate a person’s tax liability as opposed to the lower federal taxable income.
That switch, however, would lead to nearly 60% of income tax filers paying more at least for the first year the new rate and system is in place, according to an analysis from the office or Revenue and Fiscal Affairs.
But the goal is to eventually reach a 2.49% rate, where 77% of filers would see a decrease in what they’re paying to the state compared to the 3.99% rate. That would be dependent on income tax revenue continuing to grow in the state by at least 5% a year. Making that change would take at least six years at a cost of about $200 million a year.
It’s the initial change to 3.99% in the proposal, expected to come to the House floor next week, that led to opposition from SC House Freedom Caucus members.
State Rep. Sarita Edgerton, R-Spartanburg, said South Carolina has no guarantee the flat income tax will ever reach 2.49%, arguing that going to the target rate should be done immediately.
Edgerton estimated she would see an $800 increase in tax liability in the first year of the reform. She argued that most people in her district makes about the same as her family.
“They’re going to see a significant tax increase until we meet those triggers,” Edgerton said. “So, what are the guarantees that we will meet those triggers quickly to bring relief to the people of my district who are already paying more than their fair share?”
State Rep. Sarita Edgerton, R-Spartanburg, speaks about a proposed tax reform proposal on Tuesday, April 1, 2025. Joseph Bustos jbustos@thestate.com
Even one of the state’s most vocal Democrats questioned the approached pushed by Republican leadership because the rate is expected to eventually make it to 2.49%.
“What does eventually mean? What’s the timeline on eventually?” said state Rep. Gilda Cobb-Hunter, D-Orangeburg.
The 2022 tax cut, which included a $1 billion rebate, included reducing the state’s top marginal rate from 7% to 6% phased in as revenues allow. Because the economy has performed well, lawmakers have since accelerated that planned rate reduction, with House budget calling for the rate to reach 6% this year.
A phased-in approach would be used again under the tax reform proposal.
“We have already had a tax cut based in this exact same metric, and we’ve been implementing that over the last couple years, and we’ve done it quicker than we were ever intended in doing so. And so I think a proven track record of that is important,” said state Rep. Brandon Newton, R-Lancaster, who serves as the assistant majority leader.
Under the proposal, in 2026, middle income South Carolinians will bear the brunt of that increase. The majority of residents who make between $20,001 and $150,000, representing more than 60% total tax filers, could expect an increase in their tax liability as the state shifts to a 3.99% flat tax next year.
But the benefits of the bill won’t be fully felt by most middle income tax filers until the flat tax rate falls to 2.49% and there’s little certainty over how long that would take.
The proposed bill requires that by Feb. 15 of each year, the Revenue and Fiscal Affairs Office evaluate the state’s financial projections to set the next year’s flat tax rate. If the state is not projected to grow the total amount of income tax collected by 5%, the flat tax rate would stay the same.
Factors that may effect the economy
Newton said he expected that it would take six years to fall to 2.49%, but he acknowledged that it “depends” on a number of factors.
What it may depend on is the gamble that South Carolina’s unprecedented growth continues and the state’s economy remains robust. That gamble is looking riskier as President Donald Trump’s trade war heats up and the deep cuts to federal grants, programs and workforce take effect in the economy.
On Monday, stocks closed out their worst quarter since 2022 and the chief economist of international ratings agency Moody’s raised the risk of a US recession in 2025 to 40%. Goldman Sachs similarly raised the likelihood of a recession to 35%, according to Fox Business. Further tariff increases are expected this week, with Trump dubbing Wednesday, April 2 “Liberation Day,” as he plans to roll out a sweeping set of new taxes on imports from the European Union, South Korea, Brazil and others.
An other unknown remains the fate of Trump’s sweeping tax cuts from his first administration. Among other changes, those cuts altered how the federal government calculated taxable income, including by limiting deductions for state and local taxes. That law is set to expire at the end of this year, while Newton and others expressed concern that it would not be renewed.
If South Carolina was not able to grow income tax collected by 5% each year, the flat tax rate would effectively be frozen at a rate higher than the target of 2.49%, leaving more of the liability on middle income tax payers.
“If we’re going to talk about tax relief, let’s talk about who we are providing relief,” Cobb-Hunter said. ”Since we want to focus on merit, who merits tax relief? Are the people who are over six figures as far as their annual income? Are they the ones who we should be focusing on for tax relief, or are people who make 40,000 and under 50,000 and under don’t they merit some kind of relief?”
State Representatives Heather Bauer and Gilda Cobb Hunter confer proper to S.C. Gov. Henry McMaster’s State of the State address during a joint session of the legislative delegation on Wednesday Jan. 29, 2025. Tracy Glantz tglantz@thestate.com
Proponents of the income tax plan have cautioned against saying a typical taxpayer exists because each filer’s situation is different.
“As it stands now, it’s very difficult to determine what any individual tax filers liability will be,” said House Ways and Means Chairman Bruce Bannister, R-Greenville. “It is almost impossible for the Department of Revenue to properly address the withholding tables, because everyone’s tax is different based on the federal system. Federal system has a myriad of different ways that you can reduce your taxes, which makes it impossible for our holding tables to ever be very accurate.”
Part of the goal is to expand the base of taxpayers as 44% of tax filers don’t pay any income tax to the state. If the proposal is enacted, 22.8% of filers would have no tax liability, RFA said.
Hard-line conservative opposition
The hard-line conservative House Freedom Caucus have pounced on the Revenue Fiscal Affairs office report that said making this change would lead to an increase in taxes for about 60% of filers in the first year.
The Freedom Caucus has been at odds with the House GOP Caucus, and reports that show taxes would initially increase for most filers would certainly be repeated during next year’s election.
“Disappointed but not surprised. Leadership would rather play shell games and raise taxes on most of the state rather than simply cut waste and bloat in the budget,” state Rep. Jordan Pace, R-Berkeley, posted on X.
South Carolina State Representative Jordan Pace, R-Berkeley, speaks in defense of an amendment to the state budget on Tuesday, March 11, 2025. Joshua Boucher jboucher@thestate.com
Freedom Caucus members have even called the bill a tax increase on teachers and police officers.
“SC House Leadership needs to fix H 4216,” Pace, who serves as the chairman of the House Freedom Caucus posted. “While I agree that a flat tax is a step in a good direction, we can’t raise taxes on the majority of the state. The way to cut taxes is to cut spending.”
Newton, while speaking to reporters, pushed back on the characterization by Freedom Caucus members. Newton pointed to how members of the Freedom Caucus wanted to include a $1 billion income tax cut in the House budget proposal, but were only able to offer about $100 million in spending cuts, which would have left a deficit in the state spending plan.
“I think it’s important to remember that point when you’re looking at who’s making that argument,” Newton said.
Rep. David Hiott, left, and Rep. Brandon Newton during a House of Representatives session in Columbia, S.C. on Tuesday, March 14, 2023. (Travis Bell/STATEHOUSE CAROLINA) Travis Bell
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Joseph Bustos is a state government and politics reporter at The State. He’s a Northwestern University graduate and previously worked in Illinois covering government and politics. He has won reporting awards in both Illinois and Missouri. He moved to South Carolina in November 2019 and won the Jim Davenport Award for Excellence in Government Reporting for his work in 2022.