Columbia, South Carolina – South Carolina House Republicans are pushing forth a new income tax restructuring plan that would immediately lower taxes by $400 million – an ambitious attempt aimed at altering the state’s tax code and potentially making South Carolina more business-friendly.
After public outcry and a more thorough examination by fiscal experts, the revised proposal, which the House Ways and Means Committee adopted Wednesday in a 17-6 vote, departs significantly from the previous version.
Unlike the original plan, which aimed to apply a single flat tax rate, the current proposal simplifies the system by merging three income tax brackets into two. While the other two groups would have their rates changed, the bottom bracket—which once had no tax at all—would cease to exist. Under the new model, the first $30,000 of taxable income would be taxed at 1.99%, with all income over that taxed at 5.39%.
Should it be implemented, the proposal would offer tax relief to over 42% of South Carolina filers in its first year. On average, the taxpayers would save around $488. However, 24% would see an increase in their tax payments, paying around $266 more. The other third of filers would see no change whatsoever. For taxpayers, the modifications would not be instant; the soonest South Carolinians could file under the revised system would be 2028.
Republicans have portrayed the proposal as a long-term plan to lower the state’s top marginal rate and remove “sticker shock” for companies and executives thinking about moving. Although the rate is falling to 6% under a different budget plan this year, it is still the highest in the Southeast—a fact GOP legislators have underlined as a competitive disadvantage.
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Still, Democrats are skeptical. Pointing to South Carolina’s ranking among the fastest-growing states in the US, they contend that the current tax system has not slowed the economic expansion of the state. Some legislators fear that eliminating the zero-tax rate and lowering taxes for the richest could worsen inequality.
House budget officials say the revised strategy still leaves a notable percentage of people—more than one-third—without state income tax. A tiny number of high-income earners, on the other hand, nevertheless bear most of the tax load. At the moment, around 10% of filers generate nearly 65% of all income tax collection.
The law also has a structural change by separating South Carolina’s tax code from the federal system. Lawmakers claim the shift would make the state’s tax structure more transparent and comparable with neighboring states by abandoning taxation of “federal taxable income” and instead taxing modified gross income.
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Incremental cuts linked to yearly income growth of at least 5% would help to bring the long-term aim nearer a single flat rate of 1.99%. Any such change, though, would take years and rely on steady economic development.
Proposals from some conservative groups to eliminate income taxes completely remain politically and fiscally impossible, as such a move would necessitate slashing nearly half the state’s general budget — which significantly depends on the $6.1 billion brought in from income taxes last fiscal year.
Although the House is predicted to pass the measure before session’s conclusion, the Senate is unlikely to consider it this year. Nevertheless, Republicans wish that pushing the proposal now will help it to get to Governor Henry McMaster’s desk in early 2026, thereby setting the stage for future reforms.
More details are available on SC Daily Gazette.
