Perspective: Utilize mega surplus for tax relief, not government growth

When we published our analysis comparing the House and Senate tax cut bills last month, we noted that state government was expecting a $4.6 billion revenue surplus for next fiscal year, and questioned why House lawmakers opted for a relatively small cut that would take years to fully phase in given the extra money available.  

The latest budget passed by the House reinforces this question. Critically, lawmakers have more surplus dollars to allocate than previously mentioned. The actual number is closer to $5 billion after factoring in money set aside for that small tax cut and a settlement payout related to the Savannah River Site, both of which are included the House budget.  

Of the total expected surplus, about $1.6 billion is recurring (anticipated to return in the future), and about $3.5 billion is nonrecurring (one-time funds). An important distinction between the two is that a recurring surplus can be used to absorb permanent tax reductions, whereas nonrecurring dollars are better suited for cutting checks to taxpayers. 

So, how are these funds being utilized?

Cut more, spend less

The House budget allocates just $619 million for tax relief. This is the expected initial cost of its tax cut proposal, H.4880, which cuts the top personal income tax rate from 7% to 6.5% and consolidates the lower bracket to 3% in year one (more info here). Notably, the House budget doesn’t give any money back to taxpayers using the anticipated nonrecurring surplus.

The Senate hasn’t passed a budget, but state economists project its tax cut proposal would cost around $2 billion. About half would be used to lower taxes, primarily $886 million to cut the top personal income tax rate to 5.7%, and the other half pay for one-time tax rebates ranging from $100 to $700 per filer. 

Given the surplus available, it’s clear that lawmakers aren’t seizing this opportunity, and that a much bigger tax cut can be afforded. Even if House lawmakers doubled their tax cut investment to $1.2 billion, for example, there would still be leftover recurring surplus dollars to pay for reasonable increases such as teacher/state employee pay raises and other worker benefits. If other budget hikes deemed essential can’t be afforded, cuts should be made elsewhere to find the money.

South Carolinians should, after all, expect a massive tax break after years of state government enjoying excess revenue and federal stimulus. The state budget passed just five years ago (FY17-18) was $27.4 billion; next year’s proposed budget (FY22-23) is nearly $39 billion – an increase greater than 40%. If there were ever a time to put taxpayers’ interests first, it’s now. 

Based on recent Census data, if the entire nonrecurring surplus were divided equally among adults in the state, each person would get back around $860. Not only would this hefty payback benefit citizens during a time of historic inflation, it would also naturally stimulate the economy and generate government revenue down the road. Instead, the House budget spends nearly all of it growing government, while the Senate’s proposed rebate is comparatively small.

As for the Senate budget timeline, a Finance Committee schedule indicates the full body plans to debate its version of the spending bill during the last week of April. The schedule expects to have an agreed upon budget between House and Senate delivered to the governor during final week of session.  

During this period, and with input from the governor, spending priorities need to change drastically. South Carolina has a chance to enact significant tax relief with the money available, such a moment cannot be wasted on another year of needless government expansion. Additionally, several inappropriate provisos, many recently added to the House budget, should be removed or modified in accordance with the state Constitution (read more here). 

To learn more about the need for a transparent budget process and why the streaming of meetings is so important, click here.