Senate subcommittee advances income tax reform bill that lowers top rate and creates state deduction

The Senate Finance Committee sales and income tax subcommittee on Monday advanced H 42 16, a bill that would change how South Carolina calculates individual income tax and cut the top rate.

Mister Gibson, who explained the bill to the panel, said the measure reduces the state's top individual income tax rate to 5.39% on income above $30,000 and sets a 1.99% rate on income below $30,000 for tax years beginning after 2025. "This is a state income tax bill," he told the committee as he outlined key provisions, including a switch from federal taxable income to adjusted gross income as the state starting point.

The bill also creates a South Carolina adjusted deduction that Gibson described as $15,000 for single filers, $22,500 for heads of household and $30,000 for married couples filing jointly, with phaseouts at higher income levels. He told the committee that the Department of Revenue, in consultation with the Revenue and Fiscal Affairs Office, would adjust withholding tables to reflect the change, and that the bill caps the earned income tax credit at $200 per return.

Public comment included Dawn Pierce of Lexington County, who said her family lives paycheck to paycheck and urged lower state taxes: "What I would like to see eventually happen is our state go to 0% state tax income," she said in support of the bill. Doug Snyder, a certified public accountant who spoke as an individual, said he supported comprehensive tax reform and that the change to adjusted gross income "should not make it harder" for most filers, while acknowledging some individual situations could yield small increases.

Committee members pressed for details about the distributional effects. Gibson provided an initial fiscal estimate, saying, "It is about a $120,000,000 fiscal impact" in year one and going forward, and described automatic triggers that would further reduce the top rate if individual income tax revenue grows by more than 5%. He compared the switch to adjusted gross income to practices in neighboring states and said the change would put South Carolina on a more comparable starting point to those states.

After questions and discussion, the committee made and seconded a motion for a favorable report; the chair called the voice vote and said, "Ayes have it." The bill will be forwarded to the full committee for further consideration.

The committee record shows the measure would take effect for tax years beginning after 2025; many technical details — including exact distributional impacts for particular filing situations and itemizers — will depend on calculations by RFA and the Department of Revenue as the bill moves forward.