Finish the Job: Make South Carolina’s Tax Reform Sustainable

Originally published at South Carolina Policy Institute.

South Carolina is closer than ever to a real, structural path to zero income taxes. The amended version of H.4216 is a meaningful improvement over earlier drafts. Based on recommendations from the South Carolina Policy Council, it now includes a provision dedicating 25 percent of the recurring income tax revenue surplus to additional tax relief. Lawmakers deserve credit for strengthening the path to rate reduction and eventual elimination.

The version of the bill passed by the House last year established a two-tier system, with a top rate of 5.39 percent and a bottom rate of 1.99 percent. The Senate-amended version retains the 1.99 percent bottom rate but reduces the top rate to 5.21 percent, a welcome change.

But the big question is sustainability. Will this reform hold up when the economy slows, or will promised tax relief stall?
The amended bill is primarily a tax-revenue-trigger bill, not the full budget-surplus buydown model that puts the emphasis where it belongs: on reining in government spending.

A revenue trigger says: cut taxes if revenues grow fast enough. In this case, the bill conditions future rate reductions on projected income tax revenues growing by at least 5 percent year over year. That is a forecast-based threshold. If growth falls short, tax relief slows or stops.

A budget surplus trigger, especially when paired with a firm spending limit, works differently. It says: cut taxes when the government spends responsibly, and real excess money is left over. That distinction matters because it shifts the focus from revenue predictions to actual fiscal discipline.

That is why the budget matters so much right now. South Carolina’s current budget trajectory shows what happens when lawmakers treat surpluses as permission to expand government. The Policy Council’s FY27 analysis shows the state is still on a path of big spending growth, which undermines long-run tax relief. 
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The math is straightforward. Historically, South Carolina’s General Fund revenue has grown around 7 percent annually. Population growth plus inflation has averaged closer to 4 to 4.5 percent. That gap, about 2.5 to 3 percent, is the natural surplus that appears when spending is held to a responsible benchmark. That is the engine of sustainable tax reform.

If spending growth is restrained, surpluses emerge without cutting core services. If lawmakers dedicate a fixed share of those surpluses to tax rate reductions each year, rates fall steadily. That is how you get to zero faster. If spending keeps rising at the pace of revenue, the surplus disappears, and the path to zero drags out.

South Carolina should learn from Kansas. Critics claimed the Brownback-era tax cuts failed. But the core problem was not that tax relief is impossible. It was the lack of consistent spending restraint. 

As Jonathan Williams of the American Legislative Exchange Council (ALEC) argues in Kansas Tax Cuts Success Hidden in Plain Sight, the lesson is that tax reform must be paired with fiscal discipline and structural reforms. States cannot print money. It is taxes now or taxes later if spending outpaces affordability.

The amended H.4216 is a major step in the right direction. It reflects the shift toward surplus-driven tax relief that the South Carolina Policy Council has pushed, and South Carolinians will be better off because of it.