Residents of South Carolina will pay a higher income tax this year than anticipated due to a spending plan that was accepted by budget negotiators and is currently awaiting approval from the entire general legislature.
The top income tax rate in the state will drop to 6.2% this year under the proposal unveiled on Friday. The state would have to pay roughly $99.5 million annually for the income tax cut.
A budget conference committee adopted a nearly $14.5 billion spending proposal on Friday, which includes the tax cut. On Wednesday, the General Assembly will reconvene to vote on the budget.
Currently 6.3%, the top income tax rate in the state was supposed to drop to 6.2% the next year, provided the state received sufficient funding. This gradual lowering of the income tax rate is a component of a phased-in reduction that will raise the top income tax rate to 6%.
The excess sales tax revenue that has accrued since 2020 will be used to finance the tax cut.
In exchange for halving the property taxes on owner-occupied homes, the state raised its sales tax from 5% to 6% in 2006. But since 2020, when the account had its first surplus, funds in the property tax relief fund have added up to $600 million.
Homeowners wouldn’t notice the alleviation because there was only $100,000 in excess funds at that point, and the funds weren’t disbursed right away.
Governor Henry McMaster urged legislators to use the $600 million that was made available for property tax relief on bridge repairs.
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The funds were also utilized by budget writers to fund rural roads, infrastructure, county transportation committees, and bridges. Of these, $200 million was allocated for bridges and another $200 million for county transportation committees.
“With that much money going into county transportation committees, we should not have potholes in our districts,” Senate Finance Chairman Harvey Peeler stated. “If you continue to have potholes in your district, you need to take a look at you county transportation committee. They’re not doing their work.”
The governor backed the Senate’s drive for the income tax cut.
In order to implement a property tax drop that would have lasted for at least ten years, the House had only recommended spending $150 million; nevertheless, concerns were raised over the money’s sustainability and potential to result in future property tax hikes.
“We heard a lot from the county assessors on what a property tax (cut) would do if we weren’t sure it was going to happen every year, and by locking in the income tax cut we know that’ll happen and that we maintain over a period of time and after discussions with the Senate and the governor that just we decided that made really good sense to do it that way,” House Ways and Means Chairman Bruce Bannister stated.
