SOUTH CAROLINA — South Carolina lawmakers have proposed a new flat tax rate of 3.99% starting in 2026, aiming to shift from the current two-tier income tax system, according to the Herald.
The proposal, unveiled by state leaders including House Speaker Murrell Smith and Senate President Thomas Alexander, seeks to reduce the state’s highest income tax rate from 6.2% to 3.99% and potentially further to 2.49% if revenue allows.
“That makes us not only more competitive, but also more attractive to new businesses and more affordable for families to call South Carolina home,” said House Ways and Means Chairman Bruce Bannister.
The plan involves shifting from federal taxable income to adjusted gross income, aligning South Carolina’s tax system more closely with neighboring states like Georgia and North Carolina.
Under the current system, 44% of filers do not pay any state income tax due to deductions and credits, while 10% of filers account for 63% of the tax liability.
To mitigate the impact of smaller refunds, the proposal includes a $6,000 personal exemption for filers with adjusted gross incomes of $30,000 or less, with a phased exemption for those earning between $30,000 and $40,000.
Grover Norquist, President of Americans for Tax Reform, attended the announcement, highlighting the significance of the tax reform efforts. State Sen. Darrell Jackson expressed a desire to eliminate state income tax entirely, suggesting that the current proposal does not go far enough.
If approved, the tax reform could broaden the tax base and make South Carolina more competitive, though debates continue over the extent of the changes needed.
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