What Income Tax Relief?

April 24, 2015

Inside Insight

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senate raising taxes

A SUBSTANTIAL TAX AND FEE HIKE IN EXCHANGE FOR A MICROSCOPIC TAX CUT … SOUNDS FAIR, RIGHT?

To be sure, there is absolutely nothing good about the possibility of the legislature raising the gas tax to “fix our roads.” However, the prospect has brought attention to another important issue – income tax reform. Of late, the two issues have been entwined with the governor and some legislators vowing to oppose a gas tax increase without an offset in the income tax – the extent of which seems entirely arbitrary.

The tax swap mentality, or the thought that government has to “pay for” tax cuts, isn’t just terrible public policy – thought it is that, for sure. It has led us to the absurd point at which we’re arguing about microscopic differences in taxable income as if it would mean a family’s life or death.

For the record, South Carolina’s personal income tax is high. At 7 percent, the marginal personal income tax rate is the highest in the Southeast, and is the 13th highest in the nation. Not to mention, our top bracket (7 percent) kicks in on incomes just above $14,000, meaning South Carolinians barely above the federal poverty line are paying the highest marginal rate. To this point, while the Department of Revenue’s website states that “[t]ax brackets are adjusted annually for inflation,” the state has not properly indexed for inflation in decades. If it had done so, the state’s top tax rate of 7 percent would not kick in until income reached $79,225.

Now that would be tax relief!

One might therefore expect elected officials in “red state” South Carolina to advocate substantive, even radical, tax relief. One would be wrong. Here’s what income tax relief looks like to the governor and the House respectively.

The governor proposed that the state raise the gas tax 10 cents over three years, cut the income tax by 2 percent over ten years, and restructure the Department of Transportation (though there were no specifics given on what restructuring should look like). In January, The Nerve reported – using the governor’s own numbers – that her plan would only cut the average tax bill in South Carolina by $100 for the ten-year period.

When the House passed its tax hike bill last week, the bill included what some representatives are calling income tax reduction. Under their bill – which is currently in the Senate Finance Committee – the state’s income tax brackets would be increased by $280 over a two-year period, meaning each bracket would kick in at a “higher” rate of income. This would result in a $48 per year savings for the average South Carolinian.

Don’t spend it all in one place, boys and girls!

It’s insulting that our elected officials would propose such minimal tax relief in exchange for substantial tax and fee increases, and expect citizens to buy their claims of “tax reduction.” Are they trying to save a little face before they’re painted – accurately – as tax hikers and big spenders?

Jamie Murguia is director of research at the S.C. Policy Council, The Nerve’s parent organization.