Major tax cuts on the table: Will S.C. eliminate state income tax?

Lawmakers have filed multiple bills this legislative session aimed at reducing or eliminating state income tax. Expediting a decrease in state income tax rates will position South Carolina to be economically competitive amidst significant population growth.  

Rather than relying on corporate welfare to attract industry, South Carolina should utilize free market policies to create a tax system that incentivizes economic investment. Many companies are choosing to set up shop in the Southeast but overlook South Carolina because of our tax policy.  

South Carolina’s highest marginal income tax rate is currently 6.2%, with two scheduled additional cuts coming. In Governor McMaster’s FY 2026 executive budget, he proposes an expedited cut to 6%. House Speaker Murrell Smith has also advocated for income tax cuts, saying in a post on X, “Now is the time for historic tax reform in South Carolina.”

Currently, the Southeastern average income tax rate is 3.3% (excluding SC) with neighboring states North Carolina having a flat tax rate of 4.25% and Georgia a flat tax of 5.39%. SC must pursue tax relief if it wishes to compete with neighboring states and the Southeast. 

Reducing income taxes has broad voter support as demonstrated by our 2025 session kickoff poll, 75% of registered voters want a greatly reduced state income tax, with 62% in favor of an outright elimination. 

Current proposals  

Three bills have been filed in the House and one in the Senate. Here is a breakdown of what each of these proposals would do: 

S.131, filed by Sen. Kimbrell, brings the individual income tax rate from 6.2% down to 3.5% while canceling certain sales tax exemptions. The bill ensures that a credit be applied against SC income tax for taxes already paid for that year in another state. This bill allows for a nonrefundable credit to be applied against state income tax equal to 125% of the federal earned income tax credit. Although the standard deduction remains the same, all language on itemized deductions has been stricken, resulting in what appears to be a complete cancelation of itemized deductions.  

S.131 also eliminates the corporate tax rate, bringing it from 5% to 0%, along with eliminating licensing fees previously outlined.  

This bill could go further by reducing the individual income tax rate lower than 3.5% coupled with a complete elimination of sales tax exemptions. Although having no corporate tax in SC results in competitiveness, losing that revenue should not coincide with maintaining an individual income tax as a revenue source.  

Two bills, H.3125 by Rep. Pace and the identical H.3733 by Rep. Bamberg, eliminate the state income tax entirely.  

Rep. Pace also filed H.3498 that would eliminate income taxes up to $1 million dollars. Income beyond $1 million would subsequently have a rate of 6% tax collected.  

During an appearance on "This Week in South Carolina" House Ways and Means Committee Chairman Bruce Bannister voiced support for broadening the base and lowering the rate south of 4%.  

While this proposal is not formally included in the current budget plan, discussions on broader tax reform are expected during the upcoming House budget debate. 

As the committee responsible for passing the state budget before it reaches the House floor, the House Ways and Means Committee recently approved its budget plan including a reduction from 6.2% to 6%. 

SCPC fully supports eliminating income taxes entirely, while maintaining low property taxes and low sales taxes. Lawmakers have plenty of options to balance the budget; whether it be elimination of deductions, reducing sales tax exemptions, cutting corporate welfare, trimming earmark spending, and eliminating wasteful agency spending. The governor's budget recommendations can also consider several of these proposals when drafting his initial executive budget.  

The model SCPC created, The South Carolina Responsible Budget, shows that spending should be proportional to population growth and inflation. Spending cuts combined with reducing sales tax exemptions would certainly set the stage for an income tax slash.  

Lawmakers’ proposal to establish the SC DOGE committee could play a key role in eliminating state income taxes. If the legislature and executive office can follow SC DOGE’s recommendations to reduce wasteful spending, the State will see fiscal opportunity well beyond addressing the taxation of income. 

The best is yet to come for the financial health of South Carolina, and current income tax proposals in the hopper signal a bright future.  If the legislature fails to act, it would be in vain of Republicans, Democrats, and Independents all calling for state income tax relief.