COLUMBIA — With an anticipated $1.8 billion added to next year’s budget, Gov. Henry McMaster signaled Wednesday he will again push for an income tax cut that would help boost the economy.
In January, McMaster asked legislators to send $200 million back to taxpayers as a one-time rebate. In 2018, he recommended cutting all tax brackets to save taxpayers $2.2 billion over a five-year phase-in, which he said would make it easier for businesses and consumers to invest in South Carolina’s growing economy.
Legislators sidelined both proposals as they developed the state's spending plan, which grew by $1 billion this fiscal year. They did rebate $61 million in taxes collected from a $1.5 billion Mega Millions lottery jackpot. Those $50 checks are on their way to more than 1.2 million taxpayers.
McMaster said the General Assembly should not sidestep tax cuts when legislators gather in January, especially with the budget projected to be at an all-time high of $10 billion.
“If we don’t do that this time when we have $1.8 billion in money we’re not expecting to come in, we’ll never have another opportunity like this,” McMaster told reporters following a Cabinet meeting Wednesday.
The state’s Board of Economic Advisors credited a growing economy and large surpluses for the expected windfall.
McMaster’s remarks came a week after he and other officials announced that in 2020, unemployment taxes will drop by 34 percent. That is on top of an 18.8 percent drop in the rate this year — amounting to savings totaling $121 million for businesses.
“North Carolina, Georgia, have cut their tax rates. We need to do the same thing," the governor said. "We have the highest marginal tax rates in the Southeast, we cannot prosper. We will lose investment, we will lose our productivity, we’ll lose our prosperity, we’ll lose our competitive advantage if we don’t do it, and this is the time."
About $1 billion of the additional revenue is one-time money, while the rest can be used for continuing expenses.
S.C. Chamber of Commerce chief executive Ted Pitts suggested the state dip into the new pool of $815 million that is expected to be added to the budget annually and using it for tax relief. He said it makes sense since much of that money is derived from taxpayers themselves.
"We expect policymakers to not wait. With that much extra recurring money, the General Assembly really needs to take a look at our tax structure and ways to make us more competitive,” Pitts said. “It’s a great time for the governor to lead again on trying to get some income tax reduction.”
McMaster's two predecessors also pushed for income tax cuts. In 2015, then-Gov. Nikki Haley insisted the state could absorb $9 billion worth of income tax cuts over the next decade without any reduction in spending.
McMaster spokesman Brian Symmes said the governor's office is in talks with the General Assembly “to determine exactly what the tax cut will look like.”
State Rep. Murrell Smith Jr., a Sumter Republican who chairs the House budget-writing Ways and Means Committee, said McMaster’s input will be considered as their work progresses.
“We certainly are interested in tax reform, including reduction of the marginal tax rate, and it will be discussed as we move forward with the budget process,” Smith said. “We certainly welcome the governor’s input, and look forward to working with him.”
State Senate Finance Committee chairman Hugh Leatherman said Wednesday afternoon he's open to McMaster's proposal, and plans to study it in detail.
"Ultimately we need to meet the needs of the people in this state," the Florence Republican said. "In general, I am supportive of smart tax policy that accomplishes that goal while doing the least harm to their wallet."