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South Carolina Gov. Henry McMaster proposes eventually cutting state income taxes by $750 million annually

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McMaster at Holly Hill school (copy)

Gov. Henry McMaster and his wife, Peggy, greet members of a mentoring program at Holly Hill-Roberts Middle School in Holly Hill on Oct. 30, 2017. On Monday, he released his budget proposal that provides an additional $10 per student in the so-called base student cost. Seanna Adcox/Staff

COLUMBIA — Gov. Henry McMaster proposes cutting state income taxes by $140 million in the first of a five-year phase-in he says will effectively give all taxpayers a raise.

McMaster's plan, released Monday as part of his 2018-19 budget recommendations, would cut taxes by $2.2 billion cumulatively over the next five years. Once fully phased in, it would reduce state revenue by more than $750 million annually, saving taxpayers between $55 and almost $55,000, depending on their income, or about $300 on average, according to the state Revenue and Fiscal Affairs Office.

That's in addition to the tax breaks McMaster announced Friday for retired military personnel, law enforcement officers and firefighters. Exempting their pension benefits from state income taxes is expected to reduce state revenue by an additional $22.6 million.

Under McMaster's plan, all retirement pay from those careers would be exempt starting July 1.

"When you cut taxes, economic growth goes up," said McMaster, who is seeking his first full term this year. "Just like night follows day, if you cut taxes, things happen. The result will be a more vibrant economy."

The Legislature has rejected similar tax cut plans offered by former Govs. Mark Sanford and Nikki Haley.  

The governor's executive budget serves as his recommendations to legislators for allocating more than $8 billion in state revenue. The Legislature will craft their own plan after they return Tuesday for the 2018 session.

McMaster says the federal tax cut law passed by Congress last month "makes it more important than ever" to cut state income taxes, as it eliminated some of the federal tax deductions South Carolinians could take. 

Collectively, state agencies have requested more than $2 billion more in the coming fiscal year, according to Revenue and Fiscal Affairs.

McMaster's plan provides no across-the-board pay raises for state workers or teachers. But it does boost the salaries of some law enforcement officers, including $1,000 each for officers in adult prisons, and would pay highway troopers for the overtime they're working. According to the Governor's Office, troopers are officially instructed to take time off instead but are unable to actually schedule it. 

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His plan fully covers state employees' pension increases and covers most of their rising health care premiums. 

Carlton Washington, director of the State Employees Association, said lawmakers shouldn't be talking about tax breaks until all workers get a raise. A 2016 report on state workers’ salaries showed they’re paid less than their counterparts in governments even within South Carolina, plus give up more of their paycheck for benefits.

"While we support and agree first responders need attention, so do many other front-line employees," Washington said. McMaster's "sending a message of division to a workforce that's already angry, with morale being extremely low." 

Other proposed increases for law enforcement include $20 million toward a new crime lab for the State Law Enforcement Division, estimated to cost $54 million.  

McMaster has been touring some of the poor, rural school districts that initially sued the state for adequate education funding 25 years ago. In 2014, the state Supreme Court ruled the state wasn't providing those students minimal education opportunities and ordered lawmakers to fix the system. But after McMaster launched his tour to come up with his own recommendations, the high court — with new members — ended its oversight. 

McMaster said he still plans to recommend ways to improve K-12 schools in ways that don't cost money.  

His budget plan would provide $16 million to cover enrollment increases in K-12 schools, and $10 million to increase the so-called base student cost by just $10, to $2,435 per student under a 41-year-old formula that's still one of the main sources of education funding. 

He called that a "significant investment," though the state remains hundreds of millions of dollars short of what's supposedly required by that law, which is adjusted annually for inflation. 

His plan allocates more than $21 million more for charter schools and $5 million for hiring 75 officers to work in the state's poorest schools. His goal, eventually, is for every school to have a certified police officer, according to his office.  

Follow Seanna Adcox on Twitter at @seannaadcox_pc.

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