SC’s McMaster wants to accelerate planned income tax cut to 6%. Here’s his new timeline
Story Date: 1/14/2025

SC’s McMaster wants to accelerate planned income tax cut to 6%. Here’s his new timeline

By Joseph Bustos

Updated January 13, 2025 4:52 PM

COLUMBIA, S.C.

Gov. Henry McMaster wants lawmakers to accelerate the planned income tax cut to 6% by two years, a proposal he put forward as part of his $14 billion executive budget. The state’s income tax rate is 6.2% and is slated to move to 6% in two years if revenues to the state continue to grow. A income tax filer with $50,000 of taxable income would save about $100 under the proposal.

“We don’t need to stop at 6% — we should continue cutting or eliminating the personal income tax rate as much as we can, and as fast as we can,” McMaster wrote in a letter to lawmakers.

The proposal to cut the income tax faster comes as lawmakers are pushing for additional tax cuts during this year’s session. The phased-in approach to cut the state’s income tax rate from 7% to 6% put in place in 2022 was designed to protect against an economic downturn.

“I don’t think we will have one, we’re going in the other direction,” McMaster told reporters Monday the day before lawmakers return to Columbia for the annual session.

“You have businesses, you have people, you have companies, and they’re all looking for the best place to go. And the tax structure is a part of that.” But a larger-than-planned tax cut also will limit the estimated annual money available for lawmakers to allocate.

According to the Board of Economic Advisors, after required contributions are set aside into reserve accounts, budget writers will have about $533 million in new annual money and $1.1 billion in one-time money to allocate for a 2025-26 spending plan. An accelerated tax cut will keep $193.5 million out of state coffers.

Among the largest expenses McMaster proposes is increasing the starting teacher pay in the state to $50,000 from $47,000. Each cell in the teacher salary schedule, which pays teachers based on level of education and years of experience, also would go up by $3,000. The plan would cost the state $200 million more a year.

According to the South Carolina Department of Education, the state has about 64,000 educators. In South Carolina’s 72 school districts, only 16 districts pay at least start pay at $50,000 for beginning teachers. McMaster also wants $240 million for disaster relief to cover unreimbursed costs from Hurricane Helene, Tropical Storm Debby and the floods in Edisto, as well as for future disasters that don’t qualify for federal assistance.

Because lottery revenues are expected to drop, money to pay for college scholarships will have to come from general revenue to cover an expected shortfall. In order to help the lottery commission increase revenue, McMaster called for allowing people to use debit cards to buy lottery tickets. Currently only cash is allowed.

The move would bring in about $52 million a year to the lottery. McMaster’s budget also doesn’t include money for a new detention center for the Department of Juvenile Justice, which would cost about $200 million. Instead, his office points to the $73 million the agency has in reserves for other capital projects the agency needs to carry out to show budget writers the agency is being good stewards of taxpayer dollars.

“I have confidence, and I have great hope that Eden (Hendrick), she’s well qualified for that position, which is one of the most difficult ones in state government,” McMaster said., said of DJJ Director Eden Hendrick. DJJ asked for $200 million to construct a new juvenile detention facility because the current one is outdated and overcrowded.

“She is working, her team is working. They want to do the right thing. And I think that the General Assembly would probably like to see some progress on those plans before putting more money into those plans,” McMaster said. “But more money is going to have to come, because it is getting to be a desperate situation.”

The governor also proposed spending $112.2 million on the state health plan to make sure people on the plan won’t see an increase in health insurance premiums for the 13th year in a row. The state health plan covers includes public school employees, state employees and government retirees among others.

McMaster, however, wants a cost savings study on the state’s health plan to see if future increases can be minimized because this is the fourth year in a row the state would have to increase its health care premium costs by $112 million. “That’s almost a half-a-billion dollars ($449 million) in four years,” McMaster said. “That’s not fiscally sustainable.” The state’s four-year colleges requested $99 million for tuition mitigation, but McMaster only proposed $29 million for a tuition freeze for in-state students.

He also proposed a new methodology to determine how much money should be spent on tuition mitigation by basing the amount on the current tuition and fees rate, the Higher Education Price Index of 3.4% and number of in-state undergraduate students. McMaster also called on lawmakers to invest $100 million into the state’s bridges.

“There is no infrastructure more in need of investment than our state’s roads, bridges, highways and interstates,” McMaster wrote to lawmakers.

“Because our booming economy and rapid population growth have outpaced the state’s ability to keep up with improvements to our transportation infrastructure, we must continue to make big, bold, and transformative investments.”

The S.C. Department of Transportation had asked for $200 million in annual money to fix aging bridges in the state. Even though the McMaster included less than what DOT requested for bridges, the governor also requested $50 million to to the agency as part of his disaster relief plan.