SC Governor Proposes Flat Income Tax

Governor Mark Sanford today joined with legislators in Columbia and visited small businesses in Charleston and Myrtle Beach to call for an optional 50 percent reduction to the state’s top marginal income tax rate - from the current 7 percent to 3.4 percent - to be offset by a 30-cents-per-pack increase to the state’s cigarette tax.

“First and foremost, this debate is about where we want to go as a state with respect to growing our economy,” Gov. Sanford said. “A lowered and flattened income tax would represent a significant step towards making our state more attractive, and improving our competitive position when it comes to growing our economy - because as the Federal Reserve’s recently said, marginal rates matter in terms of bringing jobs and investment to our state.”

“Two, let’s be equally clear that while we believe this proposal would go a long way toward increasing our state’s competitiveness, it’s also about not increasing the aggregate tax burden on South Carolinians,” Gov. Sanford said. “Some of the proposals to raise the cigarette tax for various healthcare programs would at best be another instance of government picking winners and losers in the private marketplace, and at worst a $245 million tax increase. Funding Medicaid by increasing the cigarette tax would only prolong the life of the Medicaid program temporarily - meaning more tax increases down the road to sustain growth in the program. We continue to believe that any tax increase needs to be accompanied by a corresponding tax decrease.”

States’ marginal income tax rates are key to their ability to grow the economy. According to a recent study from the Atlanta Federal Reserve Board, “Relative marginal tax rates have a statistically significant negative relationship with relative state growth.” Put another way, the lower the tax rate the greater the state’s economic growth.

The current flat tax proposal, sponsored by House Majority Leader Jim Merrill and others, would offer South Carolinians two options for paying their taxes, starting in 2009 - to either pay the current 7 percent rate and be eligible for current deductions, or to pay a flat tax of 3.4 percent with no deductions. Additionally, the flat tax would put South Carolina more in line with other Southeastern states’ income tax rates. At 7 percent, our state’s rate is effectively the highest in the Southeast.

Source: SC.GOV