COLUMBIA, S.C. (WMBF) - The South Carolina Revenue and Fiscal Affairs Office announced on Friday a $2 billion dollars budget surplus in the 2020 fiscal year.
Experts point to a growing population and economy as factors behind the increased revenue. Another contributing factor to the rise in the General Fund is an increase in sales tax collections from online retailers. This collection started in June 2018 after a U.S. Supreme Court ruling.
There’s still a lot of time before lawmakers decide how to allocate the extra revenue but some ideas have included, increasing salaries for teachers and state workers, improving prisons and making deferred repairs on state buildings. There was an additional $1 billion in the General Fund last fiscal year but this surplus is a new record.
Some lawmakers see the budget surplus as a chance to reform the state’s tax system.
Senator Majority leader Shane Massey tweeted Friday, “A $10B General Fund budget is too high. An additional $815M in RECURRING revenue means we are taking more than we need. It’s time for tax reform and a reduction in the highest income tax rates in the Southeast.”
He’s not the only lawmaker who thinks the record-high surplus is a sign that change is needed.
“I agree 100%. When we have those types of surpluses, I think that kind of heightens the awareness that our tax system, as I have been saying for many years now, is broken,” said Republican state Sen. Sean Bennett.
Bennett has been advocating for tax reform in the state for five years and thinks now there is widespread agreement that something needs to be done.
Rep. Tommy Pope is the chairman of the S.C. House Tax Policy Review Committee and said the surplus brings tremendous opportunity.
“Personally, I’d like to see it fund long-term solutions, whether it is tax reform or something else, I think what unfortunately what happens is it’s like the trick or treat bag, you know, you open it up and everybody is snatching for their piece of candy and it would be nice if we could take more measure approaches and make more wiser steps because I think that’s more effective use of the taxpayer dollars,” Pope said.
Currently, South Carolina’s personal income tax is higher than Georgia and North Carolina, which impacts the business climate.
“If South Carolina is going to be able to recruit corporate headquarters and the type of jobs we want the state to recruit, policymakers need to address the 7% rate and lower it to make us more competitive with our neighboring states in the Southeast,” explained South Carolina Chamber of Commerce President and CEO Ted Pitts.
The Chamber of Commerce found a majority of voters support tax reform across the state.
The surplus does indicate the state’s economy is in a good place and it could be the right time to act.
“At the current rate, you know, obviously we are generating more revenue than they had projected so you could lower rates and allow South Carolinians to keep more of their hard-earned dollars,” Pitts said.
Some worry the economy won’t stay great forever and tax cuts now will bring challenges in the future.
Both the House and Senate have dedicated committees to look into tax reform but there is still a lot of details to determine the best way to make a change.
One of the top discussions is how best to use property taxes to fund public education.
Bennett said he believes a comprehensive overhaul of sales, property and income taxes is necessary.
“It’s kind of like squeezing a balloon,” Bennett explained. “I can squeeze the balloon at the income tax level but all that does is create challenges with the expansion of the sales and property tax areas and vise versa.”
But that type of restructuring will have widespread impacts on not only individuals and businesses, but entire industries.
Lawmakers said comprehensive tax reform is not likely in 2020, especially because it is an election year.
While tax reform may not happen next year, legislators did say the $1.8 billion surplus could be put towards fixing the tax system. Bennett explained lawmakers could save some of the dollars in 2020 to help ease the state’s transition into a new system in the future and lessen any gaps.
“We’re hopeful with the governor’s leadership and kind of the work that the House and the Senate are doing, we’re hopeful that policymakers will spend some time this session on tax proposals that can benefit South Carolinians,” Pitts said.
Gov. Henry McMaster will submit his executive budget in January 2020. On Friday, he offered a glimpse into what might be on that budget.
“Prosperity requires fiscal restraint and conservative stewardship of taxpayer dollars. As I have said before, a surplus means prioritizing and funding the state’s most critical needs, then returning the rest to the taxpayers or cutting taxes,” McMaster tweeted.
McMaster highlighted education, tax relief and public safety as top priorities for funding last January.