SC taxes generally fair to poor. Reducing income tax would change that.
We hear so many complaints about the wealthy having to pay more than their fair share of federal taxes that it’s easy to assume the same is true at the state level. It’s not.
Nor is it true, as leftist critics claim, that all of the regressive elements of our state tax system punish the poor.
Instead, South Carolina’s combined state and local tax system is among the flattest in the country: People who earn $12,000 are taxed at about the same 8% as people who earn 10 times. more.
Wealthier South Carolinians pay less, says one Analysis 2018 by the Institute of Taxation and Economic Policy, but the difference is not huge: the top 1% paid an average of 6.8% of their income in state and local taxes.
It’s one of those all-too-rare examples of state policy working pretty much as intended: our progressive income tax balances our regressive sales and property taxes. Not perfectly, but better than 38 other states, according to the liberal political group with a track record of reliable numbers.
The poorest South Carolinians pay an average of 5.1% of their income in sales and excise taxes, while the wealthiest pay only 0.7%. This is because the poor must spend much of their income on taxable goods, while the wealthy save or invest most of their income or spend it on services, almost none of which are taxed in South Carolina.
Less dramatically, South Carolina’s poorest residents pay 3% of their income in property taxes, while the wealthiest pay 1.9%.
In contrast, the wealthiest South Carolinians pay 4.1% of their income in income taxes, while the poorest pay 0.1%.
Now, I must point out three quick caveats: The legislature has changed our income taxes since this analysis was done, though the effect is invisible to most South Carolinians. The numbers don’t include the elderly, because they have such large and complicated exemptions in most states. And they don’t include “non-tax revenue” such as hunting licenses, your MUSC bill, tuition fees and court fines. Fees and fines tend to be regressive, and South Carolina relies on them more than any other state except Alaska, so our tax system is probably more regressive than these numbers show.
But none of that makes much difference to my talk today, which has to do with the SC House and Senate plans to cut state income taxes by 9%.
Last week, fans praised ‘justice’ H.4880 that’s because it doesn’t just cut taxes at the top — it also provides cuts for “middle-income” workers. He certainly does so to a greater degree than that of Senate Finance Chairman Harvey Peeler. S.1087, which is not the case. But the benefit is still weighted toward those with higher incomes.
It would make sense if income tax were our only tax. As we have just said, this is not the case. And the fact that the income tax rate increases as income increases plays a vital role in balancing sales and property taxes, which work in the opposite direction.
Under the House and Senate plans, the top 1% would see their overall tax burden fall even further. Just like a bunch of other people. But half of South Carolina residents earn too little to pay income taxes or pay so little they wouldn’t get any tax cuts under either plan. , including many people who work full time.
That’s not what politicians say. Republicans and even some Democrats have boasted that everyone who works for a living will get a tax cut. Some even say that everyone in South Carolina would benefit from a tax cut. So let’s examine this:
The House plan lowers the tax rate for anyone with taxable income of at least $6,410, while the Senate plan lowers the rate for anyone with taxable income of $12,820. But these are not people whose Income is $6,410 or $12,820, because there is a huge difference between income and taxable income: the state’s Office of Revenue and Fiscal Affairs reports that only about 30% of the income of residents of the South Carolina is subject to income tax.
The lower your income, the less it is taxed, because everyone gets at least a standard deduction of $12,550 on calculating their federal income, and South Carolina doesn’t charge taxes on the first 3 $200 of taxable income. That means you pay no SC income tax unless you earn at least $15,750 — or just a little more than minimum wage. Read this again: No one earning minimum wage pays SC income tax.
A single mother raising a toddler could earn double the minimum wage – around $30,000 – and still pay no SC income tax.
And here’s what makes the tax cut even worse for the top half of filers: All that extra money lawmakers want to use to cut income taxes doesn’t just come from raising income taxes. About 40% of our revenue growth in the age of the pandemic comes from sales tax collections. And as we’ve seen, the poorer you are, the more of your income you pay in sales taxes.
So what the legislature is doing is using all that extra sales tax money that has been paid disproportionately by the poor to subsidize income tax cuts for everyone but the poor.
Most SC legislators say they oppose income redistribution. Apparently, they only oppose the redistribution of income from the rich to the poor. Both Republicans and Democrats are very keen on taking money from the poor and giving it to the middle class and the wealthy.