Why South Carolina is changing the way it taxes – and what that means for Saluda County
When Saluda County voters consider the renewal of the Capital Project Sales Tax—the “Penny Tax”—this November, it is tempting to look at it simply as another county tax question.
It is more than that.
The Penny Tax should be considered in the context of a much larger change taking place across America and, especially, here in South Carolina: states are increasingly moving away from taxing income and toward taxing consumption.
That shift matters because South Carolina has now made a major commitment to reducing—and eventually eliminating—the state individual income tax.
A National Shift Away from Income Taxes
For decades, the individual income tax has been one of the primary ways state governments raise money. But that model is changing.
Since 2021, 26 states have reduced their individual income-tax rates, including 23 states that lowered their top marginal rate.
In 2026 alone, eight states enacted individual income-tax rate reductions taking effect January 1, including Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio and Oklahoma.
The trend is not limited to rate reductions. States are also moving toward simpler, flatter tax systems. Between 2021 and 2025, eight states enacted laws moving toward a flat individual income tax.
And nine states now have no broad individual income tax on wages and salaries at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
This does not mean that every state without an income tax has low taxes overall. States have to pay for roads, schools, public safety and other government services somehow. The important point is that the way states collect that money is changing.
Why?
Because taxes on income can discourage work, investment, entrepreneurship and economic growth. A tax on consumption works differently. It is imposed when people spend money rather than when they earn it.
That distinction is increasingly important in a nation where states compete with one another for businesses, workers, retirees and investment.
South Carolina has Chosen its Direction
South Carolina is now firmly part of this national trend.
In March 2026, Governor Henry McMaster signed H. 4216 into law. The new law reduced the state’s top individual income-tax rate from 6 percent to 5.21 percent beginning with tax year 2026. It also simplified the state’s income-tax structure from three brackets to two.
But the most important part of the law is what comes next.
Beginning in 2027, if state individual-income-tax revenue is projected to grow by at least 5 percent over the previous fiscal year, the state must reduce income-tax rates, subject to a limit on the amount of revenue that can be given up in any one year.
The plan is to reduce the 5.21 percent top rate until it reaches 1.99 percent. Then the state can continue reducing the rate from 1.99 percent toward zero as the revenue triggers are met.
That is a significant change in direction.
South Carolina has not simply announced a tax cut for this year. It has established a statutory framework pointing toward the eventual elimination of the individual income tax.
There is no guaranteed date for reaching zero. The reductions depend upon future economic growth and state revenue. That is intentional.
The idea is simple: reduce the income tax when the state can afford to do so, rather than creating a massive hole in the state budget overnight.
But Government Still has to be Funded
This raises an important question.
If South Carolina eventually collects little or no individual income tax, how does the state pay for government?
There is no magic answer.
The state will have to rely on some combination of economic growth, spending discipline, other sources of revenue and a broader tax base. South Carolina’s current plan does not call for replacing the income tax with a 20 percent or higher sales tax. Instead, the state is counting on economic growth and increased revenue collections to finance gradual income-tax reductions while retaining the existing statewide sales tax and local-option sales taxes.
This is where the difference between an income tax and a consumption tax becomes important.
An income tax takes a portion of what people earn.
A consumption tax is collected when people spend.
A well-designed consumption-based system can also collect money from people who are not South Carolina residents but who spend money here—including tourists, visitors and people traveling through the state.
It also does not tax money merely because someone earned it and chose to save or invest it. The tax is collected when that money is ultimately spent.
That is one reason conservatives and free-market economists have increasingly focused on consumption-based taxation as an alternative to taxes on production and income.
There are legitimate concerns about sales taxes, particularly their effect on lower-income households. Those concerns should not simply be dismissed. A responsible tax system needs to address them through the design of the tax base and appropriate exemptions or relief.
But the larger principle remains: Taxing consumption rather than production can create a tax system that is more closely aligned with economic growth.
So, Where does the Penny Tax Fit In?
This brings us back to Saluda County.
The Capital Project Sales Tax is a local-option sales tax dedicated to specific capital projects. It is not the same thing as the state income tax, and renewing it does not mean that Saluda County is simply raising taxes for general government spending.
In fact, the Penny Tax represents something quite different: asking people to contribute a small amount when they make taxable purchases in the county so that specific, voter-approved capital improvements can be funded.
That distinction becomes increasingly important as South Carolina moves toward a lower-income-tax future.
If our state is going to tax income less, it will inevitably become more important to think carefully about how we fund the public infrastructure that makes economic growth possible.
Roads. Public buildings. Recreation facilities. Infrastructure. Economic-development assets.
These things cost money.
And if we want to keep income taxes low while maintaining and improving the infrastructure that supports our communities, we need to think differently about how those investments are funded.
There is another important advantage to a sales tax: not everyone who benefits from Saluda County’s infrastructure lives here.
Visitors shop here.
Travelers eat here.
People from neighboring counties spend money here.
Businesses serve customers here.
Under a sales tax, those purchases can contribute toward the cost of the infrastructure being used—without those visitors having to pay Saluda County property taxes or file a Saluda County income-tax return.
That makes a carefully structured sales tax an attractive tool for funding specific capital improvements.
This is not an Argument for Bigger Government
Supporting the Penny Tax should not mean supporting unlimited taxation or unlimited government spending.
Quite the opposite.
Conservatives should demand accountability for every tax dollar. We should know exactly what projects are being funded. We should know how much they cost. We should insist that the money be spent as promised. And we should oppose using a capital-project tax as a back door to fund ordinary government operations.
But there is a fundamental difference between taxing people more to grow government and using a narrowly defined consumption tax to fund specific investments that strengthen the community.
That distinction deserves serious consideration.
South Carolina is already moving toward a lower-income-tax future. The question is not whether that direction is occurring. It is now state law.
The question is how we responsibly make that transition while continuing to build the infrastructure that our citizens, businesses and visitors need.
That is the larger conversation we should have before November.
And that is why, in the articles that follow, we will take a closer look at the Capital Project Sales Tax—what it is, what it can fund, how it affects taxpayers, and why renewing it may be in the best long-term interest of Saluda County.
Lower taxes on income.
Responsible government spending.
And smart investment in the infrastructure that makes a growing South Carolina possible.
Those goals do not have to conflict.
In fact, they can work together for a stronger Saluda and happier tax-payers.
