South Carolina moves closer to zero income tax

By Vance Ginn, Ph.D. and Sam Aaron

South Carolina just took a major step toward meaningful tax reform—and closer to becoming a national leader in economic competitiveness.

Last Tuesday, the South Carolina House of Representatives passed an amended version of H.4216, a landmark income-tax reform bill that incorporates many of the recommendations long advanced by the South Carolina Policy Council and other free-market voices.

With bipartisan recognition that the state’s current progressive income tax structure is outdated and burdensome, this reform is the strongest sign yet that South Carolina is serious about eliminating the income tax. 

What’s in the amended Bill? 

Originally the bill would consolidate South Carolina’s income tax brackets into a flat rate of 3.99%. Under the amended version the state would move to a two-tiered system with a 1.99% rate on taxable income up to $30,000 and 5.39% on income above that. The amended version of H.4216 also includes two key options for sustainable tax relief.  

The bill requires 5% revenue growth before triggering tax relief, then allocates either $200 million or 25% of the state's recurring general fund surplus (whichever is greater) toward cutting the income tax. This ties tax relief directly to responsible budgeting. 

This combination ensures that future tax cuts are based not on wishful forecasts, but on actual fiscal results. It’s a major win for fiscal conservatives and reform advocates alike. 

In fact, during floor debate, lawmakers publicly credited the South Carolina Policy Council for their leadership and guidance in shaping the surplus buydown portion of the bill—affirming that smart ideas can become law when backed by principled policy and persistent advocacy. 

Why this matters 

As it stands, South Carolina levies the highest personal income tax rate in the Southeast at 6.2%. Under H.4216, that top rate would fall to 5.39% immediately on income over $30,000 and 1.99% on income under $30,000. 

Additionally, the bill charts a path to a flat 1.99% and eventually full elimination. That would give South Carolina the lowest flat income tax in the nation – beating Arizona’s current 2.5%—and put it on a clear trajectory to join the ranks of zero-income-tax states like Texas, Florida, and Tennessee. 

As Patrick Gleason with Americans for Tax Reform observed, “H.4216, if enacted, would have South Carolina go from a tax cut laggard to a national leader.” He added, “It would make clear the ultimate goal is to take the income tax rate to zero, giving the Palmetto State a tremendous advantage when competing with all states and other nations for job-creating investment.” 

As currently drafted, the bill would reduce taxes for nearly 40% of South Carolina filers, raise them for close to 25%, and leave the rest unchanged. This imbalance can be addressed if lawmakers aggressively target either the deduction structure or further reducing the rates by focusing on spending restraint. With thoughtful adjustments, the bill can ensure meaningful relief for all taxpayers without unintended hikes along the way. 

What now? 

The Senate now has the opportunity to build on this momentum. They should maintain the surplus trigger, improve the structure for fairness and simplicity, and adopt the most sustainable flat rate possible. That means: 

• Using AGI as the income tax base to minimize taxpayer compliance costs. 

• Providing a broad standard deduction and reducing or eliminating special credits. 

• Ensuring the tax code does not unintentionally raise taxes on working families. 

This moment is a turning point. With the right tweaks, South Carolina can chart a clear, responsible path to zero income taxes – strengthening families, growing small businesses, and attracting investment from across the nation. 

With the income tax bill now a red-hot issue, the Senate has made clear its intent to take up the legislation at the start of 2026, the second year in the two-year legislative cycle.  

But work on this issue should begin well before then, starting in the Governor’s Office. If the governor aims high and exercises fiscal restraint on state spending growth, more recurring revenue will be available to accelerate the buy-down of the top marginal income tax rate. That would help South Carolina responsibly get to zero income tax as quickly as possible, without shifting the burden to tax hikes in other areas. 

While the current bill represents a major step forward, there’s still room for polishing to ensure it delivers the greatest benefit for all South Carolinians. The House has done commendable work; now it’s time for the governor and the Senate to finish the job. If both chambers and the governor stay focused on delivering the strongest, most responsible tax relief possible, South Carolinians at every income level will benefit.