Eliminating State Income Tax
Companion bills S.155 and H.3678 are near identical to last session’s S.901, which never made it out of committee. Each bill would gradually eliminate South Carolina’s individual income tax over a five-year period by reducing each bracket’s rate by 1.4 percent each year, starting in 2016, until all brackets reach 0 percent. Currently, there are six brackets of income taxed at higher rates as the level of income rises. At a top rate of 7 percent on income just over $14,000, South Carolina has the highest marginal tax rate on the lowest level of taxable income in the Southeast (third in the nation), and the 13th highest income tax rate in the nation.
If this bill were passed, South Carolinians would see substantial tax relief right away starting in 2016, since roughly $570 million would be kept in the pockets of citizens rather than put into state coffers (the state collected roughly $2.8 billion in individual income tax for the 2013-14 fiscal year). Thus, in the 2020 fiscal year, once the tax is eliminated completely, South Carolinians would be able to keep nearly $3 billion that would have otherwise gone to government and allocated by politicians. Left in the private market, this money would give people the power to save, invest, or spend how they choose and give businesses the opportunity and incentive to hire more people and provide higher-paying jobs. Moreover, there are plenty of state agencies and programs that can be cut (e.g. the Deptartment of Commerce, the Deptartment of Agriculture, and many administrative functions of the Departments of Education and Health and Human Services) in order to make up for the cut in revenue.
And since many businesses pay these individual income tax rates rather than the corporate tax rate, eliminating this tax is necessary to compete with other states that are lowering their taxes. South Carolina simply can’t compete with other states with its current “economic development” strategy of high taxes for most, and hand-outs and incentives to specific companies state officials choose to “recruit.” Currently, seven states don’t have a personal income tax, and in the 2013 legislative year, 18 states — many in the South and Southeast — lowered taxes. That would include North Carolina, which just cut its personal income tax rates from 7.75-6 percent to a flat rate of 5.75 percent. Under S.901, South Carolina’s top tax rate in the first year of rate decreases would be 5.6 percent—slightly lower than our northern neighbor’s.
In short, eliminating the individual income tax means more money in citizens’ pockets, more opportunity for job creation, smaller government budgets, less government intrusion in the economy, less government power in general — and when all this is combined, more freedom for South Carolinians.