A bombshell new report from the state’s Revenue and Fiscal Affairs Office reveals a much-ballyhooed state Republican income tax cutting plan would actually raise taxes for the vast majority of Palmetto State residents earning less than $120,000 a year.
Just last week, state Republican leaders unveiled what they called a historic income tax cut that would lower the state’s top rate from 6.2% to a 3.99% flat tax for all.
But in short, the report shows the so-called tax cut plan, backed by Gov. Henry McMaster and GOP leaders in the state legislature, would be a tax increase for 60% of South Carolinians.
For instance, based on numbers in the report, a teacher or warehouse worker making $50,000 a year likely would get socked with a $600 tax increase. A marketing manager or HVAC technician making $75,000 would see their taxes rise by $800.
Members of the S.C. Freedom Caucus, a hard right faction in the S.C. House that often battles with the body’s establishment GOP leaders, were quick to pounce.
“Republican leadership wants more of your money and are attempting to fool you into believing they are lowering your taxes,” the caucus said in a March 31 statement. “Call your Rep. now and tell them to actually cut taxes and help the middle class!”
State Democrats, happy to have the chance to label S.C. Republicans as the party of tax and spend, were even more caustic, with one telling the Charleston City Paper that the so-called “tax cut” reminded them of an old S.C. saying:
“Figures don’t lie, but liars figure.”
How we got here
As the City Paper reported in early January, a broad-based tax increase was always the likeliest outcome of the GOP’s pledge to flatten the tax code this legislative session.
The reason? Despite a top income tax rate of 6.2%, the average South Carolinian only pays 2.9% after the state’s generous standard deduction. More than 40% of taxpayers pay no income tax at all thanks to the way the tax code is written.
In the story, Neva Butkus, a tax policy analyst with the Institute on Taxation and Economic Policy in Washington, D.C., noted taxes have tended to go up for most residents in states with flatter tax codes.
“Since 2021, about half the states in the country have ‘cut’ income taxes,” Butkus told the City Paper. “And they eventually have to pay for that with something. Usually, raising or expanding sales taxes and fees or kicking responsibilities down to the locals, all of which ask more of lower- and middle-income families.”
Here in S.C., the tax-increase mechanism is different. Rather than openly raising sales taxes or fees, the state GOP plan quietly eliminates the current standard deduction — the very thing that keeps taxes low for most residents.
And the result is exactly what Butkus predicted in January: Bigger bills for the average taxpayer.
Nevertheless, some GOP House members defended the plan Monday, arguing that a flat income tax was the only alternative to democratic socialism.
“Once again the S.C. Freedom Caucus is joining forces with Bernie Sanders and Democrats to redistribute wealth instead of offering historic tax reform,” Rep. Brandon Guffey (R-York) said in a social media post.
But Freedom Caucus Rep. April Cromer (R-Anderson) ignored the ideology and kept pounding the numbers, noting again that the leadership tax cut was actually a tax hike for most.
“That’s not just misleading, it’s unacceptable,” Cromer said. “It is unthinkable that any conservative would support a plan that increases taxes on hardworking families.”
The S.C. House Ways and Means Committee is set to begin marking up the tax bill at a subcommittee meeting later today — setting the stage for a full debate in the weeks ahead.
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