South Carolina Tax Windfall

South Carolina Tax Windfall

Suppose that you found out that the state government received an unexpected windfall of 200 million dollars a year starting next year, without needing any changes to the tax law and without any new taxes. What should the South Carolina government do, if it happened?

Well, it is about to happen. It turns out that the new federal Tax Reform provides an incentive starting next year for many taxpayers to stop itemizing their income tax deductions and to use the standard deduction instead; that’s because the federal standard deduction is doubling. Most South Carolinians use their federal tax decisions to drive their South Carolina income tax as well, and so more taxpayers are expected to use the South Carolina standard deduction starting next year – meaning that a small portion of their federal tax savings will become South Carolina tax revenue. I checked with our state Senator Shane Massey, who verified all of that and estimated that the additional state revenues would be around $200 million a year, starting in tax year 2018, the one that has to be filed by April, 2019.

What should we do with that windfall? There are a number of areas that the state government has said they would fund, if only they had the money.

  • They could increase funding to K-12 Public Schools. For several years, the state was the subject of a lawsuit by several poorer counties, including Abbeville and some along the I-95 corridor, to increase funding to match the minimal level provided to students in the rest of the state. The state said they couldn’t afford that; now they can start.
  • They could fund the Local Government Fund (LGF). As set up in 1991, the LGF is supposed to provide 4.5 percent of the state revenue to local city and county governments; as our city and county authorities know in Edgefield County, the state has not been meeting that obligation in recent years due to funding constraints; now they can start.
  • Public college and university tuition has grown much more rapidly than inflation, a trend exacerbated during the recession because the state reduced per-student support. The state government had to reduce their per-student funding (and therefore cause higher student debt due to higher tuition) because they could not afford to support South Carolina college students to the level they had been doing in past years; now they can start.
  • They could reduce state income taxes and eliminate the windfall forever.

Absent any input from Edgefield Advertiser readers, it’s likely that the government will eliminate the windfall. If you think there is a better option, please contact Shane Massey, Bill Hixon, or Bill Clyburn as I have, and let them know.