South Carolina, despite being a deeply conservative state, is lagging behind its neighbors when it comes to significant income tax cuts. While both Carolinas kicked off the year with tax rate reductions, South Carolina’s cuts are not as steep, and the state still charges higher taxes than North Carolina and other states in the Southeast.
In 2022, South Carolina reduced its top income tax rate from 7 percent to 6.5 percent. This year, the rate dropped further to 6.2 percent, with future plans to bring it down to 6 percent. However, North Carolina has gone much further in cutting taxes. The state reduced its flat income tax rate from 4.5 percent to 4.25 percent and plans to lower it further to 3.99 percent next year. North Carolina is also on track to reduce its corporate tax rate to zero by 2030 if it continues to meet its revenue goals.
If South Carolina continues with its planned tax cuts, its top marginal rate will remain at 6 percent, which is still the highest in the Southeastern region. This puts the state at a competitive disadvantage compared to its neighbors. To attract businesses and residents, South Carolina must prioritize further reducing its income tax rates and aim for full tax elimination in the future.
Why Hasn’t South Carolina Matched Other Red States?
The reason South Carolina has failed to keep up with other conservative states, such as North Carolina, in reducing taxes is rooted in the state’s ongoing spending problem. Over the last decade, South Carolina’s general fund budget has grown significantly. In fiscal year 2013, the state’s general fund budget was $6.6 billion. By fiscal year 2025, it has more than doubled, reaching $12.4 billion.
This sharp increase in spending has created a major obstacle to meaningful tax reform. The state’s growth in spending is largely driven by a rapid population increase. South Carolina has been the fastest-growing state in the nation over the past two years. However, state spending has increased much faster than population growth and inflation combined, which further strains the state’s finances.
South Carolina’s budget growth is due to various factors, many of which lack clear justification. Cutting back on government spending is politically difficult, as lawmakers and citizens are often reluctant to remove incentive programs or subsidies. However, addressing this uncontrolled spending is essential for making substantial tax cuts possible.
The Problem with Economic Development Incentives
One area of government spending that is particularly ripe for cuts is economic development incentives. South Carolina has a history of offering substantial handouts to corporations under the guise of economic development. For example, last year, the state offered a $1.3 billion package to attract an electric vehicle manufacturer. While this may seem like a good way to bring businesses to the state, it undermines the free market and distorts the economy. The state should not be in the business of picking winners and losers in the private sector.
Another issue is the repeated subsidies South Carolina provides to industries that distort market forces. For the past six years, in-state college tuition has been frozen, putting more financial strain on taxpayers. Similarly, state employee premiums have been kept low for 13 years, again at the expense of taxpayers. While these policies are popular politically, they suppress competition and shift financial burdens onto the public.
In a true free-market system, the government should limit its interference in the economy, not expand it. These examples of unchecked government spending only contribute to the state’s ever-growing budget and prevent meaningful tax reforms from taking place.
The Case for the South Carolina Sustainable Budget Model
To address these issues, the South Carolina Policy Council recommends adopting the “South Carolina Sustainable Budget” model, which limits spending growth to the rate of population growth plus inflation. This would ensure that government spending grows only at a pace that taxpayers can afford, without dictating specific spending choices.
By adopting this model, the state would create a more responsible approach to budgeting that focuses on limiting the overall size of government. With fiscal constraints in place, the state would have more room to focus on cutting taxes and implementing other essential reforms.
Looking Ahead: Potential for Tax Cuts in South Carolina
Despite the challenges, there is hope that South Carolina lawmakers will make progress in the coming years. Some state legislators have already shown significant interest in implementing more aggressive tax cuts. Republican state Rep. Jordan Pace has introduced a bill to eliminate the state’s individual income tax entirely, which would be a major step toward making the state more competitive. Similarly, Republican state Sen. Josh Kimbrell has proposed reducing the income tax rate to a flat 3.5 percent, which would bring South Carolina’s rate much closer to North Carolina’s.
If lawmakers can work together to find common ground on tax cuts, South Carolina could follow in the footsteps of North Carolina by reducing its tax burden significantly. This would help attract more businesses to the state, increase economic growth, and ensure that residents and taxpayers can keep more of their hard-earned money.
The Path Forward: Tax Cuts and Responsible Spending
For South Carolina to successfully lower its taxes and remain competitive with neighboring states, lawmakers must prioritize reducing government spending. While cutting taxes is essential, it is equally important to make sure that the state does not continue to increase its budget at an unsustainable rate. By focusing on responsible spending reforms, South Carolina can ensure that future tax cuts are not only possible but sustainable in the long run.
In the end, the state’s ability to achieve meaningful tax reform will depend on its willingness to address its spending issues and adopt fiscal policies that prioritize taxpayers’ interests. Only by reducing government interference and cutting wasteful spending will South Carolina be able to achieve the kind of tax cuts necessary to support economic growth and attract new businesses and residents to the state.
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Why South Carolina is Falling Behind in Tax Cuts Compared to North Carolina and Other Red States
Why South Carolina is Falling Behind in Tax Cuts Compared to North Carolina and Other Red States
Why South Carolina is Falling Behind in Tax Cuts Compared to North Carolina and Other Red States