STATEHOUSE REPORT |  ISSUE 25.10  |  March 6, 2026

BIG STORY: S.C.’s tax paradox: High rates, low bills
MORE NEWS: House votes to honor Trump, Kirk over Dem’s objections
LOWCOUNTRY, Ariail:  Operation Epstein Distraction
BRACK: Something a little odd spotted at Statehouse
MYSTERY PHOTO: Blue sky
FEEDBACK: Send us a letter

BIG STORY

South Carolina’s tax paradox: High rates, low bills

News analysis by Jack O’Toole, Statehouse bureau  |  For the second time in a year, S.C. lawmakers were caught flat-footed this week by public backlash over the consequences of their still-evolving plan to cut the state’s top income tax rate.

That was the takeaway when members of the S.C. House Ways and Means Committee scrambled under public pressure Tuesday to push through a bill adopting President Donald Trump’s 2025 federal income tax cuts at the state level — less than a month before the April 15th tax filing deadline. Without the legislation, South Carolina taxpayers will owe state taxes on income that is newly exempt from federal taxation.  In other words, without a law to “conform” with the updated federal tax code for this tax cycle, state taxpayers would pay old rates for items cut by the feds, leading to confusion and more — particularly for tax preparers.

Among other popular changes, this new tax conformity bill would slash taxes on tips and overtime and give residents 65 and older an additional $6,000 income deduction. The price tag? Almost $300 million in lost revenues that lawmakers will have to find a way to offset in this year’s budget if the bill passes the full House and Senate.

So why could the measure still fail in one or both chambers? Because it conflicts with another major legislative priority this session — lowering the state’s top income tax rate, which also costs millions in lost revenues.  And to see why, experts say, you have to understand the central paradox of Palmetto State tax policy: S.C. has the highest official tax rate in the Southeast but some of the lowest actual tax bills in the region.

And the reason for that paradox is simple: S.C. is one of only five states that applies its tax rate to what’s called “federal taxable income” — that is, your income after federal deductions, rather than before. Put simply, S.C. is taxing considerably less income at a slightly higher rate. And that’s what keeps taxes low for most taxpayers.

In fact, it’s why the average S.C. filer can theoretically be in the state’s top 6% bracket while only paying about 2.5% of their real income in taxes — and more than 40% of filers pay no state income tax at all.

But to cut that official top rate without bleeding red ink, lawmakers have decided to apply the new, lower rate to income before federal deductions instead of after. 

Which is why the legislature’s first attempt to meaningfully lower the rate collapsed last year when state budget analysts testified that it would raise taxes on 60% of filers — the result of taxing a larger income number at a lower rate.

The case for a rate cut

It’s all very complicated. 

Following last year’s initial failure, House budget writers regrouped and produced a new bill that cut the top income tax rate from 6% to 5.39%, cutting taxes for 39% of filers, raising taxes for 27% and leaving them the same for the rest.

Last month, the S.C. Senate passed that House bill, but further lowered the rate to 5.21%, increasing the number of filers who’d get a tax cut to 43% — and more than doubling the cost of the tax cut to $309 million.

Despite the political and practical difficulties, supporters of the plan say the move is necessary to boost state competitiveness with neighbors like North Carolina at 3.99% and Georgia at 5.19%.

What’s more, they argue, the high official rates can actually reduce individual enterprise, particularly among small business owners, who often file as individuals and wind up paying something much closer to the official rate.

Or as the S.C. Chamber of Commerce summed up the issue in its Roadmap for Tax Reform: “South Carolina is by no means a high tax state in the main, though it can feel that way for certain taxpayers. The problems, rather, come down to questions of tax structure.”

Sam Aaron of the right-leaning S.C. Policy Council expanded on that argument in a Wednesday interview.

“Whenever you decrease your income taxes, you’re freeing up capital for someone to use,” Aaron said. “And you’re going to see an increase in capital investments and spending.”

But the real goal, Aaron notes, is to match Florida’s rate of 0% — a goal the current bill nods at by imposing automatic tax cuts in future years when there’s a budget surplus of $200 million or more. 

“In our view, philosophically, yes, that’s where we’d like to end up,” he said of eliminating the income tax. “With less revenue going to state government, you’re going to have to run a leaner machine and adjust your budget accordingly.”

Competitiveness measures: good roads and schools

On the other side of the aisle, the left-leaning Institute on Taxation

and Economic Policy (ITEP) calculates each state’s overall tax rates from every source — income, sales, property and fees — based on income.

Its findings for South Carolina’s current tax system? The bottom 20% of state earners pay the highest overall tax rate at 10.1%. Middle-income residents pay 9.5%. And the top 1% pay 6.5%.

Cutting the top income tax rate and paying for it by breaking with the federal income rules would cut the overall tax burden of those at the top of that distribution and raise it for those closer to the bottom.

“These are pretty deep and regressive tax cuts,” said Neva Butkus, senior policy analyst with ITEP, in a Wednesday interview. “And that money’s got to come from somewhere.”

Specifically, she argued, if lawmakers really mean to move rates toward zero, it will have to come out of the things the state spends most of its money on — schools and teachers, roads and bridges, health care and public safety.

“South Carolina has been growing fast with its current tax code,” Butkus said. “And those are the real competitiveness issues.”

And at the end of the day, she argued, tax cuts are just the wrong investment for a state already struggling with infrastructure, education, health care and more.

“Using the tax code to invest in families and workers as opposed to cutting taxes disproportionately for the top 5% of income earners, that’s where you’re going to see growth,” she said. “For the amount of money that these plans cost, so much more could be done to invest in the people of South Carolina.”

For now, those questions reside in the House, where members will have to vote soon on the Trump tax cuts and whether to accept the Senate’s changes to their income tax bill. Lawmakers in both chambers are expected to take final action on the bills before this year’s legislative session ends in May.

MORE NEWS

House votes to honor Trump, Kirk over Dem’s objections

By Jack O’Toole, Statehouse bureau  |S.C. House Republicans voted on Thursday to rename three state roads in honor of President Donald Trump and slain conservative activist Charlie Kirk over the objections of many of the chamber’s longest-serving Democrats.

If passed by the S.C. Senate, the resolutions would rename a McCormick County bridge on Highway 378 the “Charlie Kirk Memorial Bridge,” a section of Highway 76 in Laurens County the “Charlie Kirk Memorial Highway,” and the proposed Interstate 73 that might one day run through Horry and several other S.C. counties “The Donald J. Trump Highway.”

Laurens County Republican Rep. Luke Rankin, who sponsored the Highway 76 renaming, called Kirk a “unifier.”

“His passing affected me deeply and profoundly and will have a lasting impact on the rest of my political career,” Rankin said of the Turning Point USA founder who was gunned down last September. “People need to know that Charlie Kirk was a champion of the pro-life cause, was a strong and devout Christian [who] advocated for family values.”

The resolution honoring Trump, sponsored by Horry Republican Rep. Heather Crawford, spoke of the president’s “renowned business savvy and financial acumen,” as well as his support for the I-73 project.

But several of the chamber’s Democrats objected to the renamings in stinging terms, noting Trump’s 34 felony convictions and Kirk’s history of making divisive political and racial remarks.

“I am so amazed at this rush to honor people who have no honor,” Rep. Gilda Cobb-Hunter, the body’s longest-serving member, told her colleagues.

She added, “I don’t care what you think, because you’ve shown you don’t care what we think. I can’t sit here and listen and watch. I can’t do that today.”

The resolution will now go to the S.C. Senate for further consideration.

In other recent news

2026: Wilson, Evette outline how they want to dump state income tax. Two GOP gubernatorial candidates — Lt. Gov. Pamela Evette and Attorney General Alan Wilson  — pitched different approaches at a Greenville forum on how they want to eliminate state income taxes.

Long-anticipated S.C. boat tax cuts nearing governor’s signature. A long-anticipated resolution to slash South Carolina’s taxes on boats will likely soon hit Gov. Henry McMaster’s desk, granting nearly $40 million in annual relief once it’s fully phased in over three years.

Few drops out of S.C. Supreme Court race. South Carolina Supreme Court Justice John Cannon Few has dropped out of the high court contest that was scheduled for Wednesday. The withdrawal means the process to pick the next justice will have to start over.

McMaster’s chief of staff exits. Trey Walker, Gov. Henry McMaster’s longtime chief of staff who has been on his team for decades, announced Tuesday that he is stepping down after nine years before the governor’s second full term in office ends. Walker says he will start a political consulting firm.

Shakeup ahead at state Public Service Commission. Two sitting members of the state Public Service Commission have lost their seats during an uncommonly competitive election for the agency.

Thousands honor Jackson at Statehouse. Civil rights leader and Greenville native Jesse Jackson lay in repose Monday at the Statehouse where he was honored with a hero’s memorial. Thousands of people circled his flag-draped casket under the state capitol’s rotunda. Final services and burial are set for Friday in Chicago.

ROBERT ARIAIL’S LOWCOUNTRY

Operation Epstein Distraction

Credit: Robert Ariail

Award-winning cartoonist Robert Ariail has a special knack for poking a little fun in just the right way.  This week, Ariail suggests a better name for the operation for the U.S. bombings of Iran.

COMMENTARY

Something a little odd spotted at Statehouse

Commentary by Andy Brack   |  Something happened at the Statehouse this week that threw me for a loop. 

It wasn’t another strange bill that somebody introduced. Or an argument that happened between two irritated politicians. Or even some new salacious scandal that made tongues wag.

It was this: I saw a possum waddling around a state monument on the Statehouse grounds near the Gressette Senate Office Building.  It happened so quickly that I first thought the critter was some kind of weird hairless dog.  But the rat-like tail gave it away.  

The episode was such a shocker that I almost forgot there was a camera in the phone.  I snapped a couple of shots, but only got his tail-end scampering away.

Coincidentally, when I mentioned the possum-sighting to a Greenville friend frequently in Columbia, he said, “I saw him on Tuesday.” And it was in the same area.

Seriously: We both saw a real, live, fat possum. And he or she (we’re not going to get into a dumb pronoun debate) was certainly well-fed.

And this is where the jokes might start:

  1. How could you tell it was a possum and not some kind of waddling legislator?
  2. I thought the only possums were inside the Statehouse, not on the outside.
  3. At least he (or she) didn’t roll over and play dead like the do-nothing possums inside the Statehouse.
  4. No wonder that horse statue in front of the Wade Hampton building looks like it’s running away.
  5. Is this possum a new member of the Statehouse Fat and Ugly Caucus?
  6. You reckon former Gov. Mark Sanford wants to pick up the possum and take it inside like those pigs Pork and Barrel that dribbled poop on him all of those years ago?
  7. Did the possum turn over and play dead like too many state legislators are doing on important issues to help working people?
  8. Maybe this possum can be the new Statehouse mascot.  The Statehouse gift shop could make millions on possum T-shirts and mugs.  

If you’ve got more jokes or want to give the possum a unique name, share your thoughts at feedback@statehousereport.com.

Opossums, unfortunately, often get a bad rap – just like many politicians in our state.

Possums often are thought to be dirty or diseased because they are scavengers, but experts say they’re remarkably clean and groom themselves like cats to remove ticks and fleas.  It doesn’t help that they can sometimes have frightening facial features or that rat-like tail.  

Possums also are odorless because they don’t have sweat glands.  There’s a misconception that they’re often rabid, but because they have low body temperatures, the virus can’t easily survive inside them, according to science.

Possums also often are known to “play dead.” But that’s really just a self-induced reaction to fear, not a sign of their intelligence.

So yes, it was odd to see the Statehouse possum.  And speaking of odd things happening this week at the Statehouse, it would be helpful for someone to explain why there’s such a pell-mell rush to memorialize slain right-wing activist Charlie Kirk by naming a bridge and road after him.  He’s not from South Carolina.  He visited a couple of times in 2025 but didn’t make a consequential impact.  ButNevertheless, partisans are frothing like some possums to honor him.

Seems like it would be a lot better to honor a leader from South Carolina.  Maybe someone who made a real impact across the world.  Like, perhaps, the late Jesse Jackson who died last month?

Andy Brack is editor and publisher of the Charleston City Paper and Statehouse Report.  Have a comment?  Send to:  feedback@statehousereport.com

MYSTERY PHOTO

Blue sky

The sky is very blue in this photo.  But what else is in this mystery photo? Might be too tough.  But let’s see. Send your best guess – plus hometown and name – to: feedback@statehousereport.com.  

Meanwhile, last week’s mystery – “Nice horsey” – shows a horse being readied for transportation to a home stable from Anson Street near the Charleston market area.  

Hats off to the sleuths who got the correct answer: Allan Peel of San Antonio, Texas; Katie Morgan of Chapin; Susan Richardson of North Myrtle Beach; Frank Bouknight of Summerville; and George Graf of Palmyra, Va.

  • SHARE: If you have a Mystery Photo to share, please send it to us – and make sure you tell us what it is!
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  • Have a comment?  Send your letters or comments to: feedback@statehousereport.com.  Make sure to provide your contact details (name, hometown and phone number for verification.  Letters are limited to 150 words.
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