S.C. House Oks $15.4 Budget

Skylar Laird/S.C. Daily Gazette

COLUMBIA — The House approved two income tax bills Tuesday immediately after passing a $15.4 billion spending plan that didn’t factor in their revenue losses.

The votes sent one bill, which lowers state income tax rates, to the governor’s desk. Republicans tout it as a tax cut, though many South Carolinians will pay more next year under the changes. Democrats blasted the bill as a tax increase on working people. The other bill would temporarily apply federal tax cuts to state income taxes.

The House advanced the first draft of the state budget in a vote of 101-18, with members of the ultra-conservative Freedom Caucus opposed. It included about $248 million for tax relief in anticipation of the passage of laws changing how the state collects revenue.

That’s not enough to cover the combined $597 million in income tax reductions representatives passed immediately after.

The House voted 71-49 to agree with the Senate’s accelerated reduction of the top marginal income tax rate, a move expected to reduce taxes for almost 43% of filers and reduce revenue by nearly $309 million in the first year. Democrats noted that its impact to taxpayers vary wildly across income levels. State revenue analysts predict 23% of filers will pay more next year, while 35% will see no change. The legislation requires further reductions in future years as the economy grows.

It was the final vote needed to send that bill to Gov. Henry McMaster.

The budget and the other tax-cutting bill still have a long way to go.

Representatives unanimously advanced a plan to use federal tax reductions for taxes due April 15. Conforming for one year only to the changes passed by Congress last summer is expected to reduce revenues by $288.5 million. It’s unclear whether senators will even take that up.

Legislators will figure out how to account for the reductions when the budget returns to them from the Senate, said Ways and Means Chairman Bruce Bannister.

They may not need to cut anything. State revenue updates between the budget’s first draft and the Senate passing its version generally provide legislators more money to spend. Those updates look at collections so far this year and how that impacts predictions for next fiscal year.

Ultimately, the House’s second budget proposal — which sets up negotiations between the chambers — will depend on what the Senate passes. Bannister was unsure how the House would deal with a property tax cut for older homeowners that the Senate advanced.

If that’s a sticking point for senators, that could change the calculations on the House side as well, he said.

“We’ll see if those numbers hold,” Bannister, R-Greenville, told reporters after the votes Tuesday night.

Leaders were generally happy with their first bite of the budget, which advanced faster than anticipated with no major changes.

“This is a budget that brings people together rather than pulls people apart,” House Speaker Murrell Smith, R-Sumter, told reporters.

Income taxes

Some Republicans said the reduced income tax rates, which already went beyond what the House passed last year, still didn’t cut enough. As advanced by the House last year, the overall reduction in year one was $119.1 million, compared to $308.7 million in the Senate plan, according to updated estimates from the state Revenue and Fiscal Affairs Office.

Democrats and Republicans in the hardline Freedom Caucus said a purported tax cut shouldn’t increase taxes.

Democrats pointed out that roughly a third of tax filers who report between $20,000 and $30,000 in taxable income, after deductions and any other adjustments, will pay more next year.

According to the analysis, those roughly 89,000 filers will pay, on average, $39 more on their 2027 returns, while about 52,000 filers in that income range will pay, on average, $52 less.

The analysis shows winners and losers for every income level. More than 70% of South Carolinians reporting over $1 million in taxable income are expected to see a decrease, averaging $10,000. But 20% of those highest earners will pay more next year, to the tune of more than $17,000.

The changes will affect taxpayers differently depending on their situations and applicable adjustments. There are ups and downs even for filers reporting zero taxable income. Under the bill, 35% of filers continue to pay zero state income taxes.

Any increase for a taxpayer is too much, said Rep. Jordan Pace, who leads the Freedom Caucus.

“I think it’s an absolutely insane proposition that the Republican supermajority House is going to raise taxes,” the Goose Creek Republican told reporters after the vote.

The bill includes a plan to eventually eliminate the state’s income tax entirely through incremental reductions that happen only if revenue grows enough to support them. Pace likened the goal to the tunnels painted on brick walls in the cartoon “Wile E. Coyote” — taxpayers would believe they’d reach a 0% income tax rate one day but never actually get there.

“This could put us to zero, maybe one day, when I’m 67 years old and I have grandkids,” Pace said during the debate.

He proposed a half dozen changes to bring the tax rate further down, in some cases at a cost of more than $1 billion to the state. None passed.

Rep. Brandon Newton, one of the bill’s 55 sponsors, called Pace’s arguments disingenuous, saying his cuts were not about trying to pass good legislation but to use as reelection fodder. All 124 House seats are on the ballot this year.

Any of Pace’s plans would risk both blowing up the budget and potentially killing the bill, Newton said.

Only adopting the Senate’s changes sent the bill to the governor. Any change would return it to the Senate for negotiations.

“I’m certainly not going to let my legacy be that I had the opportunity to put on the desk of the governor the ability to have no income tax in South Carolina in a responsible way and I gave it up because it wasn’t perfect,” said Newton, R-Lancaster.

Budget debate

Members of the Freedom Caucus attempted to slash parts of the budget, particularly ones that made decisions they disagreed with. None of those efforts stuck.

The budget debate at times delved into philosophical questions about what constitutes a “core function of government,” a metric the Freedom Caucus uses to decide what they believe deserves state money. Their definition includes education, roads, law enforcement and museums, but not agencies such as the Arts Commission or the Sea Grant Consortium, which conducts environmental research along the coast.

That conversation, which echoed arguments the caucus has made during past budget debates, rankled other legislators.

As Rep. Josiah Magnuson attempted an explanation by comparing the government’s functions to a solar system, with the least important agencies orbiting from the furthest distances, Rep. Daniel Gibson stopped him.

“I’m not a smart man, but I’m dumber now than I was 10 minutes ago,” the Greenwood Republican said.

He asked Magnuson, R-Campobello, to specify what he supported cutting, including from grants supporting marketing for sporting events.

“Would you shut the ball fields down, son, yes or no?” Gibson asked.

The answer was ultimately no, since that amendment, like the vast majority proposed, didn’t pass.

Among the most dramatic proposed changes were cuts to Clemson University and the salaries of directors overseeing the public health and the commerce departments.

Clemson came under fire six months ago, when staff members made social media posts critical of conservative activist Charlie Kirk immediately after he was fatally shot on a Utah college campus.

The university said it couldn’t do anything, since the staff members were exercising their rights to free speech, but reversed course and fired the employees after legislators, including head budget writers, sent a letter calling for “immediate and appropriate action,” without specifying what that looked like.

One of the fired employees, a professor, will get paid through the end of this semester, though he’s not teaching any classes, after settling a lawsuit with the university.

Asking legislators to cut the university’s entire $225 million in state funding, Rep. April Cromer pointed to the response to Kirk’s death, as well as a federal investigation into the university for partnering with a program meant to increase the number of Black, Hispanic and Native American doctoral students and professors at business schools across the country. The university has since cut ties with the program.

Cromer, an Anderson Republican, also repeatedly said she had problems with the leadership of Jim Clements, Clemson’s president for a dozen years who retired in December.

“Return Clemson to the people,” Cromer said. “Stop funding the woke, the waste.”

Taking away all of Clemson’s money would turn it into “a de facto private institution,” Newton said. Essentially, state representatives would be washing its hands of a major university, he said.

The proposal was clear politicking, said Rep. Justin Bamberg, who added that he felt the conversation had devolved into nonsense instead of a genuine conversation on how the state should spend its money.

“To see higher education turned into some kind of dog and pony show is disappointing,” the Bamberg Democrat said.

Similarly, Freedom Caucus members felt they had a bone to pick with Edward Simmer, interim director of the state’s public health department, and Harry Lightsey, who oversees the state commerce agency.

Simmer, who led the since-dissolved Department of Health and Environmental Control, has remained interim director after a Senate committee rejected his appointment to permanently lead the agency. The full Senate has not voted on his appointment, allowing him to stay.

Some legislators take issue with Simmer’s encouragement of the COVID-19 vaccine, which was in the early stages of its rollout when Simmer took the helm. Edgerton blamed Simmer for the ongoing measles outbreak, the largest in the country, primarily focused in Spartanburg County, even though vaccination has increased and cases have slowed in recent months.

Lightsey irked legislators when he asked for $150 million more for the Scout Motors manufacturing facility in the works near Columbia, after legislators gave the company $1.3 billion to come to the state. They accused Lightsey of racking up a cost overrun.

The budget did not include that $150 million. Legislators are working to determine whether that number is accurate, Bannister has said previously.

“I believe if you don’t do a good job, you should be fired, and he should be fired,” Edgerton said of Lightsey.

Other legislators questioned how they would find a replacement to the agency heads for the meager salaries the Freedom Caucus proposed — $1 for the health department and $10,400 for the commerce secretary.

If Simmer, for instance, were to step down before the next budget cycle because of the cut in his pay, “How are we going to pay for a director of the department?” Caskey asked.

Like other years, none of the Freedom Caucus’ attempts to cut funding got through, as representatives yanked dozens of proposed changes over procedural objections and voted to set aside others.

House leaders did agree with an amendment to scrutinize open positions at state agencies for possible waste. That led to the Freedom Caucus pulling many of its proposals, preventing much of the protracted debate of recent years.

Barring the occasional call for legislators to mind their manners, tempers stayed primarily under wraps, paving the way for what legislators ultimately praised as a smooth budget process.

On Wednesday, Bannister recalled the state’s motto — dum spiro spero, a Latin phrase meaning “while I breathe, I hope” — in the chamber’s ability to vote on the entire package the night before.

Without naming anyone or group, he said much of the budget debate seemed to come from legislators who want to run for re-election by touting their opposition to GOP leaders, rather than propose something that would really pass.

He also borrowed a line from George Washington’s character in the play “Hamilton:” “Winning was easy, young man. Governing is a lot harder,” Bannister said.

“Ladies and gentlemen, once you’re here, it’s time to quit campaigning,” he said. “It’s time to quit trying to win. It’s time to do the difficult work of governing.”

After taking the perfunctory votes necessary Wednesday to send the budget package and conformity bill to the Senate, the House adjourned for a post-budget break. The chamber will not meet next week.