In a committee meeting Tuesday, lawmakers discussed three alternative tax cut options to go into effect in fiscal year 2026-2027.
COLUMBIA, S.C. — SC lawmakers are revising their proposed income tax cut after an earlier version drew criticism for potentially raising taxes on more than half of residents.
The original plan,introduced in March, would have implemented a flat 3.99% income tax rate for all earners starting in 2026. That rate would have gradually dropped to 2.49%. Supporters argued the change would simplify the state’s tiered system, where tax rates currently range from 0% to 6.2%.
“I believe the idea that 10% of our taxpayers are paying 65% of the income tax is not a fair tax. It’s not a good policy,” said Rep. Bruce Bannister, R-Greenville.
But a fiscal impact analysis showed the flat tax would actually raise taxes for around 60% of residents, prompting backlash from both sides of the aisle.
It comes after the state spent the last several years slashing the top income tax rate, which was the highest in the nation in 2018 when Governor Henry McMaster signed a major tax cut legislation. Under this year's proposed state budget, lawmakers would reach his goal of getting the top rate from 6.2% to 6%.
In a meeting today, the House Ways and Means Committee, chaired by Rep. Bannister, heard a presentation on three alternative options and their fiscal impact presented by Frank Rainwater, the Executive Director of the SC Revenue & Fiscal Affairs Office.
Now, lawmakers are considering three alternative plans:
Option one: A 3.99% flat tax with expanded income deductions. According to Rainwater's analysis, 58.7% of SC income tax filers would see theit ta increase in 2026 under this plan, compared to 59.4% under the original plan.
Option two: A 4.74% flat tax with even larger deductions. Under this plan, 38.6% of people would see an increase.
Option three: A revised tiered system similar to the current one, with a top rate around 5.49% and a bottom rate 1.99%. Only about 28% of earners would see a tax increase.
“The folks who don’t [benefit from federal tax breaks] are the ones paying the most taxes and having the biggest burden,” Bannister said.
All three alternatives would result in a tax cut for 20% to 40% of earners. Still, some lawmakers remain cautious.
“I’m just nervous about what I see as a cookie cutter approach to tax relief,” said Rep. Gilda Cobb-Hunter, D-Orangeburg. “I don’t think there are enough nuances being considered to lessen the impact on people who are not currently paying taxes, as well as on those who will see an increase.”
Regardless of the plan, House Republicans say they still want to go to a flat tax, with the idea that they collapse the tiered system and then cut the rate over time. But House Democrats also showed concern that this plan relies on the fact that they would eventually cut the rate, which would require the state's economy to continue to grow in order to be able to still support the state budget, which gets about 45% of its funding from individual income taxes.
Bannister says the committee is expected to meet again in the coming weeks to decide which proposal to advance. He hopes to pass a bill before the end of session in May, though it’s unlikely to reach the Senate until at least January.
None of the proposed plans would go into effect this year. However, the state budget proposal includes a separate cut to lower the top tax rate to 6%. If approved, that change would take effect in July.
