Lawmakers are hoping to approve alternative plans for tax cuts, ultimately leading to the abolition of state income taxes.
SC Columbia – a invoice Overhaul of South Carolina's income tax system will head to the House floor after clearing the Road and Means Committee with 17-6 votes.
The measure maintains a tiered tax structure, but ultimately aims to eliminate state income taxes entirely. Lawmakers made the changes after pushing back the proposed flat tax plan back earlier.
Under the current proposal, the first $30,000 of taxable income is taxed at 1.99%, while income above that threshold is taxed at 5.39%.
“This amendment will put us on the path to removing the state's income tax,” said Rep. Brandon Newton, R-Lancaster. “Unlike the original plan that stopped at a certain point in time of 2.49%, this plan continues to use triggers to zero.”
The bill sets up a system in which states see an increase of at least 5% in income tax revenue each year. The tax rate will be reduced by $200 million. The process continues until income tax is completely abolished.
“It goes all the way down to 1.99% and when you get to that point it effectively creates a flat tax,” Newton said. “And then continue the exact same steps until you reach zero.”
In the first year, about 75% of South Carolina taxpayers saw no changes or tax cuts. Approximately 24% of filers are seeing an increase, but it is unclear who this will affect.
Rep. Todd Rutherford of D-Richland said he voted against the bill and is a hestanist who supports the tax system until he has more information about those affected by the increase in taxes.
“In every taxpayer band, someone will get a tax increase,” Rutherford said. “I can't support this bill until I'm satisfied with who those people are and why they're getting it.”
Rutherford also raised concerns about income changeovers, noting that income tax accounts for about half of the state's budget.
“If we don't replace that income by using money from medical marijuana, casinos, sports bets, for example,” he said. “It's much easier and much more appealing if you're taking that money from the new taxes created from a new program, rather than trying to give it the look of a cut when it's actually a tax increase.”
While the bill is moving forward, lawmakers say that even if they pass the session, it will not be implemented this year. However, another cut in the state's highest income tax rate between 6.2% and 6% is included in this year's state budget and will take effect in July once the budget is approved.
