Bold Tax Relief and Pension Reform Agenda Earns South Carolina Governor McMaster Best of the Best Recognition
South Carolina Governor Henry McMaster is one of five U.S. governors with economic policy proposals qualifying as “Best of the Best” based on his 2018 State of the State address. The American Legislative Exchange Council (ALEC) recently released the fourth annual State of the States report analyzing each of these addresses, specifically from an economic policy perspective. The best addresses featured proposals proven to enhance economic competitiveness and growth such as low taxes, priority-based budgeting, and a more efficient state government. Gov. McMaster’s agenda, particularly on matters of tax reductions and pension reform demonstrates a commitment to pro-growth policies.
Gov. McMaster applauded “companies…announcing reinvestment and raises for employees” as a result of “the federal government cutting taxes” while recognizing that “it is now more important than ever for us to do our part.” Outlining key proposals to cut taxes and rein in government excess, the governor started with a callfor $2.2 billion in individual income tax relief over the next five years. It is time for South Carolina to “respect the right of the people to their own money, for their own purposes, according to their own priorities, ”challenged the governor. His proposal would lower each of the state’s five personal income tax brackets by 1 percentage point over five years, saving residents $139 million in the first year alone.
South Carolina ranks 27thin economic outlook nationally, according to the ALEC-Laffer State Economic Competitiveness Index—below average both nationally and especially regionally. The governor noted “South Carolina currently has the highest marginal income tax rate in the southeast,” putting the state at a substantial disadvantage in competitiveness. Nearby Florida and Tennessee do not levy income taxes, while neighboring North Carolina has the lowest corporate tax rate among states that levy them. All have reduced tax burdens by billions over the last 5 years, and all continue to experience substantial, broad-based economic growth. The governor’s proposal would bring a much-needed shot of competitiveness to South Carolina’s economy.
Gov. McMaster also demanded a complete overhaul of the state’s public employee pension system. Noting its large unfunded liabilities, he proposed to close the defined benefit system to new entrants and move to a more sustainable defined contribution model. Also, to ensure the legacy system remains solvent, he proposed raising the age of retirement eligibility as well as modifying the system’s cost-of-living adjustments.
Gov. McMaster also recalled last year’s pension reforms, which increased employee and employer contribution requirements for the South Carolina Retirement System and the Police Officers Retirement System. He went on to emphasize the dire consequences, for retirees and taxpayers alike, should reforms be delayed. According to Unaccountable and Unaffordable 2017, South Carolina’s public pension plans funding ratio ranks 42nd in the nation. This underfunding has pushed unfunded liabilities per capita up to $16,512 for every man, woman, and child in the Palmetto State.
Understanding that tax policy is only one side of the fiscal coin, Gov. McMaster also announced some $338 million in potential spending savings over five years simply from consolidation and efficiency improvements. The governor explained that prioritizing the spending of these savings could fund education-related activities far more impactful on a student’s education.
“Government cannot and should not attempt to be all things to all people,” concluded the governor. Opportunities truly flourish by lightening the burdens of excessive taxation and government. With the 14thhighest personal income tax rates, highly progressive tax code, and 8thhighest debt service levels, the tax reductions and pension reforms proposed by Gov. McMaster would boost economic opportunity and prosperity in the Palmetto State.