State Sen. Katrina Shealy wants to eliminate the state’s individual income tax, and she has Republican Gov. Nikki Haley’s blessing.
The Lexington County Republican filed a bill Tuesday that would abolish the state’s individual income tax over the next five years. If the bill becomes law, South Carolina would join seven other states – including Texas and Florida – that do not have state income taxes.
“That would be like a 9 percent cut (in the first year followed by other cuts) if every agency cut their budget,” Shealy said. “My husband has gone without a paycheck the last two years because the way his business has been. ... So if we’ve had to do it, the state needs to do it, too.”
South Carolina would lose $3.4 billion in revenue – more than half of its general fund. Shealy does not propose to replace that money with other taxes. Instead, she says the government should spend less.
Initial reaction from other Republicans, who control the Legislature, was skeptical.
“It’s very easy to propose doing away with all taxes, but there are actual reasons that we raise money,” said state Rep. Tommy Stringer, who led a House Republican tax study committee and has proposed several tax reforms. “There is infrastructure, prisons, law enforcement, education – all these things.”
Haley, a first-term governor who is seeking re-election next year, previously has endorsed smaller income tax cuts and proposed eliminating the state’s smaller corporate income tax. Tuesday, her spokesman said she supports Shealy’s bill.
“As we have seen firsthand, when you create a stronger business environment, more people get jobs – and eliminating the income tax in South Carolina will carry us to a whole new competitive field,” Doug Mayer said.
State Sen. Vincent Sheheen, D-Kershaw, the likely Democratic nominee for governor, opposed Shealy’s bill, saying he is for “a balanced tax system.”
“I think we ought to continue to have public schools in South Carolina,” Sheheen said.
The bill is unlikely to reach Haley’s desk, given recent history.
Republican legislators have been unable to agree on much smaller tax cuts. In 2012, a fight over a $64 million tax cut for small-business owners delayed the state budget passing by its June 30 deadline. Lawmakers avoided a state government shutdown by passing a continuing resolution. That tax cut eventually passed, but others – including proposals to cut taxes for the average taxpayer by $29 and $86 – have gone nowhere.
S.C. residents pay from zero to 7 percent in taxes, depending on the size of their taxable income. (Taxable income is how much money you earn in a year, minus any tax deductions or credits you qualify for, such as for dependents or mortgage interest.)
In his book, “The Right Way,” Sheheen proposed adjusting the state’s tax brackets to lower taxes on the middle class. It is similar to a plan Haley has endorsed in her executive budget proposals that would consolidate the 5 and 6 percent tax brackets, saving the average taxpayer about $29 a year while cutting $26 million from the state budget.
Rep. Stringer has sponsored a bill in the House – H.3266 – that would combine the state’s 3, 4, 5 and 6 percent tax brackets into one bracket taxed at 3.75 percent. That plan would cut state income taxes by $86 for the average taxpayer and cost the state $80 million.
Stringer said his bill is a priority of the House Republican Caucus this year and he expects it to pass the House, where all 124 members are running for re-election.
It’s unclear if Stringer’s bill has support in the Senate.
Attempts to reach Senate Finance Committee chairman Hugh Leatherman, R-Florence, were unsuccessful Tuesday.
Reach Beam at (803) 386-7038.