McMaster, SC House GOP leaders roll out $1B income tax cut proposal. What to know
Now that South Carolina lawmakers have even more money to allocate than originally expected as they put together their budget for the upcoming fiscal year, House Republican leadership and the governor want to push a larger tax cut than originally planned.
Gov. Henry McMaster, along with House Speaker Jay Lucas, R-Darlington, Ways and Means Chairman Murrell Smith, R-Sumter, and House Majority Leader Gary Simrill, R-York, are now calling for a tax cut that includes going to two main tax brackets, 3% and 6.5%, down from six tax brackets.
Over five subsequent years, the maximum rate would be reduced by a tenth of a percentage point a year until the maximum rate reaches 6%. The tax cut for each year would only take place if general fund revenue grows by at least 5%.
The current maximum income tax rate is 7%.
It’s a plan that in five years could result in $1 billion being kept out of the state’s coffers annually, according to estimates from the Revenue and Fiscal Affairs Office.
“It is a basic Republicans principle that we keep taxes low, and I believe that when there’s a surplus of money flowing in our coffers that needs to be returned to the people,” Lucas said.
The proposal follows new estimates from the Board of Economic Advisors that say lawmakers have nearly $4.6 billion in additional money to allocate this year. The previous estimate was $3 billion in additional money.
McMaster’s latest push for the tax cut comes as he and the entire House are up for reelection. The tax cut he first pushed earlier this year before the latest economic estimates only included bringing down the top rate to 6% from 7% over five years.
“This is going to happen, and it will start an avalanche of change and prosperity unlike anything we’ve seen,” McMaster said in his office, surrounded by Republican House members.
“The normal trend is there’s going to be an increase. We are confident we’re on the way up,” McMaster said. “The federal money did help, but the conservative policies that we had in this state are what have allowed this this to occur.”
Getting a tax cut through would require cooperation from the S.C. Senate, and the chamber’s Finance Committee chairman said he’s willing to entertain the idea.
“There is no question time is here for a significant tax cut for our citizens. The projected revenue ensures that we can both fund the operations of government and ease the burden on our people,” state Sen. Harvey Peeler, R-Cherokee, said.
Democrats were not included in the governor’s announcement. House Minority Leader Todd Rutherford, D-Richland, who sits on the House’s budget-writing committee, said he wants to see a tax cut that benefits people in the lower and middle classes.
“The devil is always in the details, and so we’ll see,” Rutherford said. “We don’t support giving money back to billionaires and millionaires, but we do support giving money to working families. The income level of working families needs to be worked out so we can figure out what that is, but government is here, not to be rich and sit on a hill and look down on everybody else. We work for the people and giving money back to the people is always a good thing if we can afford to do it.”
But Rutherford said the state should replace money missed out from any tax cuts with new voluntary revenue streams, such as online gaming and medical marijuana.
“We have the ability to do that,” Rutherford said. “Democrats believe in running government like a business and if you’re going to run it like a business, you make sure you have new revenue streams.”
The South Carolina Chamber of Commerce on Tuesday lauded the tax cut proposal.
“Many states around the country have already seized the opportunity from robust revenues to reduce their tax burdens, so it is critically important that South Carolina take similar action this year to remain competitive,” Chamber of Commerce President and CEO Bob Morgan said in a statement.
Most recently, about 1.1 million people filed tax returns and paid the 7% maximum tax rate, and more than 292,000 people had tax returns that paid a tax rate between 4% and 6%.
More than 1 million people filed returns that had zero tax paid, and nearly 120,000 people filed returns and paid the 3% tax rate.
Current tax brackets
▪ $0 to $3,200: 0%
▪ $3,200 to $6,410: 3%
▪ $6,410 to $9,620: 4%
▪ $9,620 to $12,820: 5%
▪ 12,820 to $16,040: 6%
▪ More than $16,040: 7%
Proposed tax brackets for first year:
▪ $0 to $3,200: 0%
▪ $3,200 to $16,040: 3%
▪ More than $16,040: 6.5%
Senior Editor Maayan Schechter contributed to this article.
This story was originally published February 15, 2022 at 5:09 PM.
