The South Carolina Senate began discussing a budget on Tuesday that accelerates a projected income tax decrease rather than the House's plan to use $500 million to provide homeowners a one-time property tax relief.

Once the spending plan passes the Senate, a group of three House members and three senators - likely including the leaders of each chamber's budget committees - will have to work out the differences over the next month or so with the tax break and other items in South Carolina's $15.4 billion spending plan for the next fiscal year.

South Carolina Urges to Accelerate Income Tax Cut

Republican Senate Finance Committee Chairman Harvey Peeler has described the dueling tax breaks as a fantastic problem to have in the 2024-25 fiscal year budget, leaving lawmakers with a sizable pool of extra money to spend.

However, Peeler has made it clear that he believes paying $100 million to reduce the state's income tax rate from 6.3% to 6.2% is the right option, citing the fact that it will last forever in comparison to a one-year cut in property tax.

According to AP News, the state is in the midst of a five-year campaign to reduce the top income tax rate from 7% to 6%.

The funds come from an account intended to provide property tax relief. Sales tax is paid into the fund, and a surge in expenditure during and after the COVID-19 pandemic has left it wealthy with cash.

The House budget proposed giving the money back as a property tax rebate. However, county officials are concerned that property tax payments may rise again next year, angering residents.

Along with $100 million in income tax savings, the Senate bill allocates $500 million to roads and bridges, municipal water and sewer system upgrades, and other projects.

Another issue that the budget conference committee will have to address is how much of a raise state employees will receive.

Under the Senate bill, state employees earning less than $50,000 would receive a $1,375 annual rise.

Workers earning more than that would see a 2.75% increase in wages. The House plan provides a $1,000 boost to those earning less than $66,667 and a 1.5% raise to those earning more.

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Supporters Commend South Carolina Lawmakers' Move

Proponents of rapid income tax rate reduction argue that it is the best approach to return surplus cash to taxpayers and that it is necessary in this period of increased state tax competition.

South Carolina is bordered by states that have recently decreased and flattened income tax rates.

North Carolina's 4.5% flat personal income tax, which is already significantly lower than South Carolina's top rate, might fall as low as 2.49% in the coming years if revenue triggers are reached.

State legislators and Governor Brian Kemp (R-Ga.) adopted another income tax decrease in March, lowering the state's flat income tax rate from 5.49% to 5.39% and making it retroactive to January 1, 2024.

Aside from South Carolina's current state budget surplus, $1.8 billion in cash of unknown origin were discovered in a flow-through state bank account. Many people believe that money should be returned to taxpayers, and legislation has been introduced to that effect, according to Forbes.

Following the historic 2022 personal income tax decrease, South Carolina legislature created an education scholarship account (ESA) program in 2023, providing thousands of Palmetto State families with future school choice.

Not only that, but South Carolina lawmakers removed Certificate of Need (CON) regulations last year, which had been criticized for raising health-care costs, something lawmakers in North Carolina and other Republican-led states had failed to achieve.

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