South Carolina’s top leaders gathered on Tuesday to unveil a bold plan to slash the state’s income tax rate by nearly 40%, setting their sights on outpacing North Carolina in tax competitiveness.

The proposed cut, which would drop South Carolina’s income tax rate from 6.2% to 3.99%, is part of an effort to offer residents a better deal than neighboring states, including North Carolina and Georgia.

The South Carolina governor, speaker of the House, and president of the Senate revealed a plan to collapse the state’s current two-tier tax system and replace it with a single flat tax rate of 3.99%. Gradually, as key economic conditions are met, the income tax rate will be reduced further to 2.49%.

“South Carolina will have a lower income tax rate than many of our neighboring states – lower than North Carolina, Georgia, lower than Alabama and Virginia,” said South Carolina Rep. Bruce Bannister, R-Greenville. “That makes us not only more competitive but also more attractive to new businesses and more affordable for families to call South Carolina home.”

South Carolina currently has the highest state income tax in the Southeast. During the press conference, lawmakers also suggested lowering sales tax and property tax rates as well. With North Carolina’s current flat income tax rate of 4.25%, leaders repeatedly mentioned the state due to its enhanced tax rates over the past decade.

“Immediately, you guys are going ahead of Georgia and North Carolina,” said Grover Norquist, president of Americans for Tax Reform. “North Carolina’s been doing this for 12 years and you’re going to be leaping ahead of them and then continue to match them as they ratchet down and become completely competitive with the neighborhood.”

Before 2013, North Carolina had a progressive system that ranged up to 7.75%, but Republican majorities in the General Assembly have passed significant tax reforms since then, lowering and flattening income tax rates as well as corporate income tax rates. Further tax cuts are scheduled to lower the North Carolina personal tax rate to 3.99% in 2026, which is when South Carolina’s proposal would take effect as well.

NC’s income tax reduction schedule

“North Carolina has been a national leader in tax reform over the past dozen years,” said Brian Balfour, vice president of research at the John Locke Foundation. “It’s only natural that other states would want to emulate what we’ve done. If South Carolina were to implement this change, they would match North Carolina’s scheduled rate reduction to 3.99% in 2026.”

Balfour noted that the neighboring competition could place additional pressure on North Carolina lawmakers as they look for new ways to offer economic benefits in the state.

“South Carolina’s proposal underscores the point that North Carolina can’t stand still when it comes to tax reform, and may very well put pressure on our legislators to establish a more aggressive timetable for tax cuts in order to stay ahead of our southern neighbors,” Balfour added.

While Republicans in North Carolina have championed additional tax cuts, Democrats have raised concerns over the state’s revenue. Gov. Josh Stein’s latest budget proposal suggests terminating further income tax cuts scheduled to take effect in 2026.