The South Carolina State House in Columbia.
South Carolina has long been considered a ruby red state politically and for good reason. Republican candidates dominate statewide races, hold large majorities in both chambers in the state legislature, and have held the governor’s mansion for two decades. While South Carolina has been and remains a red state, from a pure policy standpoint it hasn’t been very conservative. That, however, has begun to change over the past year, as landmark reforms long-sought by conservatives have finally made it to the governor’s desk in recent weeks and months.
The Palmetto State is home to highest state income tax rate in the southeastern United States. But last year, for the first time ever, South Carolina legislators made progress toward ending that dubious distinction by enacting the first personal income tax cut in South Carolina history. As a result, on January 1, 2023, South Carolina’s top income tax rate dropped from 7% to 6.5%. That 6.5% rate will be phased down to 6% over the next five years, while the bottom two brackets have been consolidated into a 3% bracket and indexed for inflation. South Carolina taxpayers will save approximately $1 billion annually once the tax cut is fully phased in. The bill also reduced the manufacturing tax assessment rate.
“About a third of South Carolinians will have their entire tax liability taken care of,” said former Representative Gary Simrill (R), who chaired the South Carolina House Ways & Means Committee last year when this income tax cut passed. “That’s more money in their pockets to spend how they see fit. A taxpayer knows better what to do with their money than the government does, and this gives that grand opportunity.”
After boosting take home pay for millions of South Carolinians with the state’s first ever income tax cut, state legislators came back this year and enacted S.39, legislation that will empower thousands of South Carolina parents with greater education options for their children by providing them with education savings accounts (ESAs). S.39 offers ESAs worth up to $6,000 annually to children from households with income below a certain level.
In the first year under S.39, children from South Carolina families that are eligible for Medicaid will also be eligible for ESAs. By year three ESAs will be available to any kid from a household with annual income below $100,000.
With the help of ESA funds, parents can send their child to a private school if they decide that’s the best fit. ESA funds can also be used to pay for other education-related costs.
An estimated 15,000 children will benefit from this new ESA program by year three. “There will be children whose lives will be changed for the better because of this bill,” Senator Greg Hembree said about S.39’s passage.
Enactment of ESA legislation in South Carolina comes amid what many consider to be a golden age for school choice nationwide. Over the past two years, seven states have enacted universal ESAs.
“Four states have adopted universal school choice already this year—Florida just extended school choice to every child, following Iowa, Utah, and Arkansas,” Dr. Oran Smith, a senior fellow at the Palmetto Promise Institute, said in his testimony in support of S.39. “West Virginia passed school choice for everyone in 2021 and Arizona expanded its program to universal in 2022. Oklahoma, Ohio, Wyoming, Texas, Nebraska, Kansas and Pennsylvania are likely next to act.” North Carolina is another state where lawmakers are moving to enact universal school choice this year. Another robust school choice bill, a more traditional tax credit scholarship program (S.285), has passed the Senate as well.
In addition to the first ever state income tax cut and the creation of an ESA program that will provide more education options to thousands of children, South Carolina lawmakers also enacted S.164, a reform aimed at reducing health care costs. S.164 repeals the state's broad Certificate of Need (CON) program immediately except for acute hospitals, but those CON requirements go away in 2027, and they disappear immediately in any county where there is no hospital. When fully implemented, South Carolina will be able to tout what many consider to be most significant CON repeal in America in 25 years.
CON requirements force health care providers to ask state government for permission to expand facilities or invest in new and improved equipment. There is a wealth of research indicating CON mandates drive up the cost of care and reduce precious access.
A Mercatus Center study found states with CON requirements have 30% fewer hospitals per 100,000 people, which translates into CON states averaging 131 fewer hospital beds per 100,000 residents compared to states without CON mandates. With access to health care an acute problem in rural communities, it’s worth noting that CON states also tend to have fewer rural hospitals. Recognition of CON mandates’ inflationary effect is so widespread that it was one of the rare areas of agreement between the Obama and Trump administrations.
“This system is so broken, the concept is so deeply flawed,” Senator Wes Climer (R), co-sponsor of S.164, said of the existing CON regime as his repeal bill was debated in the legislature. “If our interest is expanding access and lowering cost, there are no other options besides complete repeal.”
"South Carolinians will have greater access to affordable health care services with the repeal of the certificate of need laws," Governor Henry McMaster (R) said in his signing statement for S.164. "Everyone benefits when the proven power of the free market is unleashed in our state."
Most states still have CON requirements, in part because powerful and influential constituencies lobby to keep them in place. When considering that, South Carolina’s CON repeal is an even more impressive achievement. Speaker Murrell Smith and Senate Majority Leader Shane Massey — with the help of conservative reformers like Senators Wes Climer and Tom Davis and Representatives Sylleste Davis and Jason Elliott — are leading South Carolina into a new era in the state’s rich history, one in which the Palmetto State is no longer simply a red state where Republicans easily win elections, but also one where conservative reforms are being enacted.
