Guest Column: What South Carolina’s Latest Tax Bill Means For You

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by DIANE HARDY

Because tax policy is so complex, at the Mom and Pop Alliance of SC we believe it’s wise to listen to Certified Public Accountants (CPAs) over well-meaning politicians or the media.

It is widely known that SC has the highest income tax rate in the southeast, so there has been considerable pressure placed on our state government to lower it. Pressure has also been building to decrease state spending. Many were very disappointed when that didn’t happen as we watched the S.C. State House refuse to cut any spending at all.

The message from citizens and small business owners has been clear: please decrease spending and lower our income tax rates. So, the spending increased rather than decreased, but at least they heard us about lowering the rates, right?

The answer to this question depends on who you ask. Americans for Tax Reform President Grover Norquist, S.C. Gov. Henry McMaster, Speaker of the S.C. House Murrell Smith, and many others in leadership positions believe a bill they recently introduced, H. 4216, which would establish a flat income tax of 3.99% (down from 6.2%) would be of great benefit to S.C. taxpayers. There would also be the possibility of lower rates in the future if thresholds were met regarding surpluses in state revenue.

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In the words of House Ways and Means Chairman Bruce Bannister, “that makes us not only more competitive, but also more attractive to new businesses and more affordable for families to call South Carolina home.”

Early headlines from Forbes, US News, and The (Charleston, S.C.) Post and Courier lavished praise on this potential “historic tax cut proposal,’ but more recent headlines are not so rosy for H. 4216.

If the bill does what proponents say it does, sign us up!  The Mom and Pop Alliance of SC strongly supports lowering income tax rates and allowing citizens and small business to keep more of their hard-earned money, but we thought it best to ask actual CPAs their take on H. 4216.

We were curious how this “historic tax cut” would only cause an estimated $200 million decrease in revenue to state coffers, which is negligible relative to a budget of over $41 BILLION. It would appear that H.4216 provides its proponents accolades for cutting the tax rate without the challenge of operating under a leaner budget. How can we lower the income tax rate over 30%, yet still bring in almost the same amount of money to the state?

The CPAs explained how. What wasn’t being headlined is that this bill is the elimination of the $15,000 federal standard deduction for single filers and $30,000 for married couples, which are replaced with much lower “SC Adjusted Income Deduction” (SCAID) of $6,000 for a single filer and $12,000 for a married couple. While upper income earners would probably not be impacted and may see their tax bill go down, these tax professionals believed this change would hit middle income earners especially hard! 

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RELATED | TAX REFORM DISASTER

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The tax professionals offered specifics:

• Taxes on a single earner making $60K will go from $2,112 to $2,394 (13% increase)
• Taxes on a single earner making $42K will go from $996 to $1,676 (68% increase)
• Taxes on a married couple, no children, making $84K will go from $2,670 to $3,351 (25% increase) 

In the words of one of the CPAs, “I’m 100% in favor of a rate reduction, but not at the expense of the standard deduction.”

Interestingly, this is the opposite of what Georgia did just last year. They lowered their rate slightly (5.49% to 5.39%) and increased their standard deduction for a married couple from $14,500 to $24,000. It might be helpful for legislators to reach out to their counterparts in Georgia to explore why they went in the opposite direction of what our leadership is proposing.

While we at the Mom and Pop Alliance concur with the overall intent of this legislation (lowering rates and broadening the base), we believe H. 4216 is not the way to do it. We all know that what you tax you tend to get less of (think cigarettes & alcohol). With labor participation down in South Carolina and many of our members struggling to find workers, why would we increase income taxes on the very people we need? 

Also, with middle class income earners having been pummeled with record high inflation, in what world would it be wise to increase their taxes now? Why not just keep things as they are, but actually lower the income tax rate? Because that would require cuts in governmental spending, which there doesn’t seem to be the will to do right now in Columbia.   

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ABOUT THE AUTHOR…

Diane Hardy is a former nurse anesthetist turned entrepreneur, who opened a franchise at Verdae in Greenville over seven years ago. She is executive director of the Mom and Pop Alliance of SC, which she founded during Covid upon discovering South Carolina’s almost 400,000 small businesses had little representation in our State House. The Alliance provides education, communication, and advocacy for SC’s family-owned businesses. Her passion for South Carolina’s small business is strong, and as such she donates her time to the organization, accepting no salary or government funding.  Her love for our state isn’t new.  Before launching the Mom and Pop Alliance she was the founder and host of The Palmetto Panel (2014-2019), an annual statewide conference highlighting issues impacting South Carolina.  Diane has a bachelor’s degree in nursing and psychology from Michigan State as well as a master’s degree from MUSC.

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