South Carolina GOP Legislators Propose 3.99% Flat Income Tax

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South Carolina House and Senate leadership held a press conference alongside governor Henry McMaster on Tuesday (March 25, 2025) touting new legislation – H.4216 – which would create a flat 3.99% income tax rate.

The Palmetto State appears poised to join a growing number of states implementing “flat tax” policy. In contrast to the state’s current progressive taxation model – which imposes higher taxes on higher incomes – a flat tax model imposes the same tax rate on all income levels.

Should the state meet certain revenue projections, the 3.99% tax rate would be reduced to 2.49% under the new tax plan – which would take effect in 2026.

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House ways and means committee chairman Bruce Bannister said the bill “maintains all the existing deductions and credits, including those for military families, senior citizens and families with dependents.”

While the state’s formal economic impact projection for the bill has yet to be completed, Bannister estimated the tax cut would result in a revenue reduction of approximately $200 million.

“We are committed to reducing the income tax burden on our residents without shifting the tax load to other areas like property tax or sales tax,” Bannister said, contrasting South Carolina’s proposed cut with tax swaps passed into law in other states.

“It is not our intention to change the revenue source, it is our intention to reduce it,” Bannister said. “That’s what true tax reform is.”

(Click to view)

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Bannister noted under the new law, South Carolina taxpayers would be required to separately calculate their taxable earnings, meaning taxpayers currently reducing their state taxable income by the federal standard and itemized deductions will no longer be able to do so.

“There will be some people, when we take away the federal gaming of the tax system that pay more, but we believe 3.99% is a legitimate, good, fair tax to charge them,” Bannister said, adding “there are people in the million dollar tax bracket who will get a break, and there are people in the million dollar tax bracket who will pay more that just don’t pay anything now.”

The legislation proposed a new “South Carolina Income Adjusted Deduction” system which would reduce the taxable incomes of single individuals and separately filing married couples by $6,000, heads of households by $9,000 and married couples by $12,000.

If passed, the new state deduction would only fully apply to single-filing taxpayers making less than $30,000 annually, and would be fractionally reduced such that a taxpayer making $40,000 would be ineligible to take the state deduction.

Bannister indicated this change would result in an increased tax burden for a substantial number of South Carolinians, citing a statistic that of the state’s non-income tax paying households, 44% are “making income between $1,000,000 and $10,000.”

Under the new plan, taxpayers will have less of each paycheck deducted for state income tax – meaning higher paychecks, but lower annual tax refunds.

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When S.C. Senate finance committee chairman Harvey Peeler was asked how the House bill would be handled in his chamber, he indicated a desire to further decrease the income tax rate.

“We’ll take this plan when it reaches the Senate and make it better and better… I mean lower,” Peeler told reporters.

Peeler hinted future bills would also address the state’s “sales tax and property tax,” which according to him “also need to be lowered.”

South Carolina is currently ranked 33rd nationally in sales tax competitiveness and 41st in property tax competitiveness by the Tax Foundation.

Peeler indicated he did not anticipate difficulty in passing the income tax reform through the House and to the Senate prior to the legislature’s May 8, 2025 sine die adjournment.

McMaster praised legislative leaders for introducing the bill – and called for rapid passage of the legislation.

“I look forward to having a tax reform package with lower taxes that I can have on my desk before this session ends so we can take another great step forward in the history of our state,” McMaster said.

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The announcement today about a possible income tax reduction in SC is a welcome announcement and perhaps a baby step in the right direction.

The DOGESC agenda calls for a complete income tax elimination funded by a realignment and partial dismantling of the 103 unelected…

— Rom Reddy (@RomReddySC) March 25, 2025

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Charleston, S.C. businessman Rom Reddy – founder of the newly launched Department of Government Efficiency (DOGE SC) – expressed hesitation over the bill’s language.

A press statement from DOGE SC termed the introduction of the bill “a welcome announcement and perhaps a baby step in the right direction,” but quickly added “DOGE SC is concerned about statements accompanying today’s announcement such as ‘there will be more money in the paychecks but a smaller refund’ and a ‘shift in the basis used to calculate tax from federal taxable income (lower basis) to adjusted gross income (higher basis).'”

Reddy called for a “complete income tax elimination funded by a realignment and partial dismantling of the 103 unelected agencies and 83,000 regulations.”

State legislative leaders have indicated no desire to significantly cut government expenditures or pare back regulations this legislative session.

S.C. Freedom Caucus chairman Jordan Pace expressed similar concerns, telling FITSNews “we are reading and analyzing the bill to see if it is an effective tax hike or cut.”

Count on FITSNews to track this legislation as it proceeds through the South Carolina legislature and provide our readers with further analysis of the bill’s potential impact on Palmetto State taxpayers.

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ABOUT THE AUTHOR …

(Via: Travis Bell)

Dylan Nolan is the director of special projects at FITSNews. He graduated from the Darla Moore school of business in 2021 with an accounting degree. Got a tip or story idea for Dylan? Email him here. You can also engage him socially @DNolan2000.

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