S Carolina House leaders want to just tackle income tax cut
COLUMBIA, S.C. (AP) — Republican leaders in the South Carolina House appear ready to tackle cutting income taxes in the state before this year’s General Assembly session ends in May.
A House subcommittee plans to pass a bill cutting the state’s top income tax rate from 7% to 6% in time to be considered along with the budget later this month.
The proposal phases in the cut 0.2% at a time over five years as long as state revenue continues to grow by at least 5%. It would cost about $750 million when fully in effect, according to a fiscal impact summary from state economists.
Cutting taxes has a big buzz around the South Carolina Statehouse in 2022. Republican Gov. Henry McMaster again mentioned a similar plan to the House bill in his budget plan and State of the State address last month.
Democratic Rep. Spencer Wetmore in her party’s response told Republicans “let’s start by working together to provide tax relief to working families who actually need it” without unveiling a specific plan.
South Carolina has more than $5 billion in extra money to spend this session. About $1 billion of that is predicted in extra taxes as more people move into the state and the economy continues to boom.
A change of power on the South Carolina Senate Finance Committee may also open the door wide for income tax reform. Republican Sen. Hugh Leatherman ran the committee for 20 years before his death in November. Leatherman was cautious about cutting taxes after dealing with devastating budget cuts during the Great Recession around 2008.
So the key question this session may not be whether to cut taxes, but whether to include an income tax cut as a broader effort to reform all kinds of taxes in the state from the hundreds of deductions and rules in the income tax code to the dozens of exemptions to sales taxes to a 2006 property tax swap called Act 388 that limited how much money local governments can raise even as property prices increase,
House Majority Leader Gary Simrill said Thursday he only wants the House to tackle the income tax part this year. The Republican from Rock Hill paired the broad tax cut with a bill that would exempt the retirement income of military veterans from state taxes, estimated to cost roughly $10 million a year.
Simrill and the rest of the House subcommittee heard a brief presentation from state Revenue and Fiscal Affairs Office Executive Director Frank Rainwater about how saying South Carolina’s top tax rate is 7% isn’t the whole story.
By the time the exemptions and deductions are factored in, few people pay that high of a rate. But 44% of taxpayers pay no state taxes, while 9% of taxpayers are responsible for about 60 cents of every dollar in state income taxes, Rainwater said.
Adjusting taxes is not as simple as plugging numbers into an Excel spreadsheet and there are so many variables that it is impossible to pinpoint an average taxpayer, Rainwater said.
“A shoutout to my high school algebra teachers — this is the one reason you need to take Algebra 2 in high school to work through these problems,” Rainwater said as he started his presentation.
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