The South Carolina House of Representatives approved a $15.4 billion state spending plan early Wednesday morning after more than 16 hours of debate over two days. The fiscal year 2026-27 budget passed 101-18. Most opposition came from House Freedom Caucus members.
The House also approved Senate amendments to lower the state’s top income tax rate from 6 percent to 5.21 percent in the first phase. The legislation includes a path toward a 1.99 percent flat rate over five years. House Speaker Murrell Smith said the House Ways and Means Committee built broad support for the package.
The spending plan now goes to the Senate Finance Committee, which is expected to draft its version in early April. Floor debate is scheduled for the week of April 21. Final passage will require negotiations between the chambers before the budget reaches Governor Henry McMaster.
South Carolina currently uses a progressive income tax system with a top rate of 6 percent. Under the approved legislation, the top rate would fall to 5.21 percent at an estimated cost of $309 million. The bill sets revenue triggers for additional reductions toward a 1.99 percent flat rate and includes provisions that could allow further reductions if economic conditions permit.
The tax changes would replace federal deductions with a state-adjusted deduction system. The 1.99 percent minimum rate would apply to incomes up to $30,000. The flat rate structure would apply to income levels above that threshold.
House Democrats opposed the tax overhaul and said it would increase taxes for some working families while lowering them for higher-income residents. State revenue analysis found that 42.8 percent of tax returns would decrease under the plan, 22.6 percent would increase, and 34.6 percent would see no change.
The House also approved tax conformity legislation to align South Carolina’s tax code with federal changes for 2025. That measure carries a one-time estimated cost of $288.5 million. It would align state tax calculations with federal definitions for deductions, credits, and income categories.
Combined with the income tax cuts and other relief measures, the state is directing more than $1 billion in total tax relief to residents. That total includes $249 million in income and property tax reductions and $824 million in Trust Fund reimbursements. House Ways and Means Committee briefing materials show $733.9 million in recurring revenue available for the budget after accounting for $637 million in existing obligations.
Those obligations include $250 million for tax relief, $90 million for teacher pay increases, and $155 million for Medicaid expansion costs. The budget also includes $125 million for pay raises, including a 2 percent across-the-board increase for state workers. Teacher pay increases receive $90 million, and law enforcement raises are also included.
The budget sets aside $33.9 million for the state health plan to keep health insurance premiums unchanged for state employees for a 13th consecutive year. Health care funding also includes $155 million for Medicaid costs and related programs. Another $34 million is included to match federal SNAP benefits.
Transportation and infrastructure funding account for a large share of the package. The House allocated $249.2 million for bridge modernization projects. It also approved $125 million for interstate improvements, including $25 million for road buyback programs and $100 million for local transportation funding.
Total road funding from non-recurring revenue reaches $450 million. The bridge modernization funding is intended for structures identified in state transportation assessments as structurally deficient or functionally obsolete. Other capital projects include $95 million for K-12 school facilities and $175 million for the MUSC Cancer Hospital expansion.
The budget also includes $145 million in general reserves. Coastal communities would receive $7.5 million in beach renourishment grants. Another $32 million is included for a settlement related to Kiawah Island.
House Ways and Means Chair Bruce Bannister said the budget reflected agreement on spending priorities. Debate also included discussion of private school voucher implementation, director salaries, and administrative costs. Representative Collins criticized the rollout of the voucher program and said the law was not intended to provide homeschool stipends.
House Freedom Caucus members who opposed the budget cited concerns about spending levels and the growth of government programs. Their opposition represented a minority of the chamber. The Senate Finance Committee is expected to review the House plan alongside issues including road funding, hemp regulation, and NIL revenue-sharing legislation.
The NIL bill would allow colleges and universities to share athletic revenue with student athletes. It could become law without Governor McMaster’s signature if he takes no action within the required timeframe. Bannister said negotiations between the House and Senate would likely focus on those differences.
The fiscal year 2026-27 budget must be finalized before June 30. The legislative calendar allows about three months for Senate revisions, conference committee negotiations, and gubernatorial review. McMaster has supported the income tax legislation and is expected to sign it if it reaches his desk in its current form.
If enacted, the tax changes would apply to income earned beginning January 1, 2026. Returns reflecting the initial 5.21 percent rate would be filed during the 2027 tax season. The Senate Finance Committee is expected to hold public hearings as it prepares its version of the budget.
Source: The State House Gavel: House OKs $15.4B SC budget, tax bills and will gov let NIL bill lapse into law? | South Carolina Public Radio