Common Sense Tax Reform: Four Principles for South Carolina

Decrease the percentage of General Fund revenue derived from individual and corporate income taxes, offsetting the reduction with a broadened and/or adjusted consumption tax base, while keeping overall rates on every tax type as low as practicable. For FY2026-27, Individual Income Tax ($6.49 billion, 43.8 percent) and Corporate Income Tax ($1.20 billion, 8.1 percent) together account for 51.9 percent of the $14.8 billion in General Fund revenue, versus 36.5 percent ($5.41 billion) from Retail Sales Tax.

Review and reduce the more than 100 existing sales tax exemptions, worth over $3 billion annually, in order to broaden the sales tax base without necessarily raising the rate.

Any legislative shift that reduces the income-tax share of General Fund revenue or broadens the sales-tax base shall be scored by the Revenue and Fiscal Affairs Office as revenue-neutral over a defined multi-year window (recommended 3–5 years) and shall be accompanied by a public phase-in schedule so that overall rates remain as low as practicable and no sudden revenue shortfall is created. A simple public dashboard showing the actual versus planned shares of income versus consumption taxes shall be published annually.

Deploy automated tolling broadly enough to apply wherever vehicles travel, not only on major highways and bridges, so that vehicles pay their way across the road network they actually use, with costs disclosed to drivers in advance. This reduces reliance on a per-gallon gas tax whose yield is eroding as vehicles become more fuel-efficient and electrified. This objective originally stood alongside a separate Mileage Fees objective studying mileage-based user fees as a longer-term alternative to the gas tax. On clarification that this objective's intent was always for tolling to extend across the whole network vehicles travel, not just major highways and bridges, the two were merged: a sufficiently comprehensive tolling system and a mileage-based fee accomplish the same end by different means, and maintaining both as separate objectives was redundant. South Carolina's total vehicle miles traveled (VMT) was approximately 60.79 billion in 2023 (FHWA Highway Statistics). The motor fuel user fee this objective would ultimately replace generates approximately $1.15 billion annually at its current 28-cent base rate (SC Revenue and Fiscal Affairs Office, FY2022-23 estimate). Dividing the latter by the former yields a uniform, revenue-neutral rate of approximately 1.89 cents per mile if applied flatly to all vehicles. A uniform rate, however, does not reflect established highway engineering. Pavement damage rises roughly with the fourth power of axle load (the "fourth power law," derived from the 1950s AASHO Road Test), such that a fully loaded 5-axle tractor-trailer causes pavement damage roughly equivalent to 9,600 passenger cars. Oregon operates a real, currently functioning weight-mile tax reflecting this: commercial vehicles over 26,000 lbs pay a per-mile rate that rises with declared weight, from $0.0764/mile near that threshold to $0.2411/mile for the heaviest configurations, while ordinary passenger vehicles and light trucks are exempt from Oregon's system entirely. Oregon demonstrates that a weight-differentiated per-mile system is administratively workable; its specific rates, however, reflect Oregon's own funding target and truck mix, not South Carolina's actual costs, and should not be adopted directly. Two caveats limit how far weight-based differentiation should reasonably extend. First, the fourth-power relationship is well-supported for distinguishing heavy trucks from passenger vehicles, but not for finer distinctions among ordinary passenger vehicles, SUVs, light trucks, and heavier EVs — modern pavements are designed with sufficient margin above light-vehicle loads that weight differences within that fleet do not produce measurably different damage. Any weight-based tier should therefore apply at the commercial-truck boundary, not as a sliding scale across the entire light-duty fleet. Second, vehicle length is not itself a driver of pavement damage — axle load is — so length should not be treated as an independent charge alongside weight. The principle this objective should follow is that each vehicle class pays according to the actual cost of its usage, no more and no less — a "cost-occasioned" standard, not an arbitrary continuation of whatever burden the current fuel tax happens to produce, and not a rate schedule borrowed from another state. This is exactly what FHWA's Federal Highway Cost Allocation Studies (HCAS) are designed to measure: comparing what each vehicle class pays in highway user fees against the highway costs it actually occasions, primarily through pavement and bridge wear. FHWA's most recent such study (1997, with a 2000 addendum) found combination trucks paying an estimated 90 percent of the highway costs they occasion nationally, with other vehicle classes closer to parity — a modest, not dramatic, underpayment, and a national, dated finding rather than a South Carolina-specific one. South Carolina should conduct its own cost allocation study before setting rates, rather than adopting the national figure, Oregon's rates, or a fuel-tax-derived approximation. FHWA provides free software for this purpose (the Highway Cost Allocation Study Program, or HCASP), already used by other states, including Minnesota, to calculate state-specific cost-responsibility ratios by vehicle class. If the Legislature ultimately sets rates that depart from what such a study finds a vehicle class actually costs, for whatever policy reason, that choice should be disclosed transparently rather than embedded silently in the rate design; see Objective 3.2. The exact rate split between light-duty and heavy-truck tiers, once a South Carolina cost allocation study exists, would also need South Carolina's specific truck share of total VMT, which was not available from the public sources consulted for this plan; a commonly cited national approximation is 8 to 10 percent, but SCDOT's Highway Performance Monitoring System (HPMS) submissions to FHWA would provide a South Carolina-specific figure. Privacy and equity safeguards ~ Any statewide usage-based system must incorporate: (a) strict limits on location-data retention and secondary use, (b) anonymous or aggregated options for light-duty vehicles where technologically feasible, and (c) a transparent low-income or rural transition credit or rebate funded from the same user-fee pool so that the shift does not impose a sudden net burden on households that currently pay less under the motor-fuel tax. Implementation shall proceed in stages: completion of the South Carolina cost-allocation study, a limited pilot, network-wide deployment, and a scheduled phase-out of the motor-fuel user fee once replacement revenue is stable.

Periodically adjust hunting, fishing, and other recreational licensing fees administered by the Department of Natural Resources to keep pace with the cost of the wildlife management and enforcement programs they fund (currently about $25.7 million annually), preserving this user-funded system's self-sufficiency rather than allowing inflation to erode it.

Periodically adjust state park entrance, camping, and concession fees to preserve the complete operational self-sufficiency the State Park Service has already achieved, ensuring park operations continue to be funded by park users rather than general taxpayers as costs change over time. The State Park Service achieved complete operational self-sufficiency — funding its own operations from user fees with no General Fund subsidy — for the first time in FY2019, according to the agency's annual accountability report.

Design and implement a system, integrated into the state individual income tax return, through which taxpayers can allocate support for specific existing sales tax exemptions and income tax credits, as well as specific discretionary spending programs in the state budget, subjecting the more than $3 billion in current tax exemptions, 110-plus tax credits, and discretionary appropriations to ongoing, direct taxpayer consent rather than only legislative negotiation. The more than $3 billion in current sales tax exemptions is forgone revenue rather than an appropriated expenditure. The corresponding discretionary-spending base subject to a checkoff mechanism is limited to the smaller pool of General Fund spending not already committed by formula, multi-year obligation, or federal matching requirement — realistically on the order of a few hundred million dollars per year rather than the full $14 billion General Fund. The checkoff mechanism shall initially apply only to the annually calculated discretionary base (General Fund appropriations minus formula-driven K-12, Medicaid state share, debt service, constitutional requirements, and multi-year obligations) plus the existing list of sales-tax exemptions and income-tax credits. Expanding the mechanism to formula-driven items would require separate statutory or constitutional changes and is outside the scope of the first iteration.

Publish an annual public report, provided to both the Legislature and individual taxpayers, showing how General Fund revenues are allocated across programs and discretionary spending items, the estimated cost of each tax exemption and credit, and the specific options available to taxpayers for directing their own taxes among those exemptions, credits, and discretionary spending programs through their tax returns. This report should present the full General Fund breakdown (currently $14.04 billion across eight functional categories) alongside the smaller subset of spending actually available for taxpayer-directed reallocation, so taxpayers can see both the whole picture and the real extent of their control over it. Goal 5's objectives are this report's categories, rendered as structured Performance Indicators. For Objective 2.1's tolling and mileage-based fees, this report should also publish the ratio of fees paid to highway costs occasioned by each vehicle class, the same "equity ratio" concept used in FHWA's Highway Cost Allocation Studies (see Objective 2.1, Indicators 2.1.7 and 2.1.8). If the Legislature sets rates that depart from actual cost responsibility for any vehicle class, the resulting cross-subsidy between classes should be disclosed through this ratio rather than left invisible inside the rate schedule. The report shall also publish the official discretionary-base calculation for the year and the vehicle-class fee-to-cost equity ratios required under Objective 2.1 so that any cross-subsidies are visible to both the Legislature and individual taxpayers.

Encourage and incentivize South Carolinians who believe more should be spent on social welfare purposes to increase their voluntary donations to organizations addressing those needs — for example, through enhanced state tax credits or deductions for charitable contributions — as a channel for that preference that doesn't require expanding government spending. Submitter's Perspective: The degree that some taxpayers may be unwilling to increase their giving unless others are forced to do likewise calls into question their support for the causes about which they claim to care.

Require the legislature, or an appropriate agency, to conduct a review no less than every two years assessing how technological trends, such as automation, e-commerce, autonomous and electric vehicles, and digital and remote services, are affecting the state's tax base, and to recommend adjustments accordingly.

Account for the impact of adopted technologies, including their potential to automate or eliminate the need for particular government programs and budget line items, as part of the state's periodic zero-based budget reviews.

Require South Carolina state agencies to publish their strategic plans, performance plans, and performance reports in an open, machine-readable format, such as StratML (ISO 17469-1), so that programs and budget line items can be compared, aggregated, and ranked across agencies rather than read one narrative document at a time. This is the data infrastructure the periodic technology impact review (Objective 4.1) and zero-based budgeting (Objective 4.2) both depend on: neither an annual technology-impact review nor a requirement that agencies rank and justify every program is practical at scale if the only representation of a program is a paragraph in an appropriations bill. Section 10 of the GPRA Modernization Act already directs federal agencies to publish their strategic plans and performance reports in machine-readable format; this objective extends that established federal practice to South Carolina. The U.S. General Services Administration's U.S. Strategy Data Fellowship is one current federal effort exploring AI-ready strategy data along these lines, with State Governments listed among its voluntary, interested participants; this objective does not depend on that particular initiative continuing, but treats it as evidence that the federal government is moving in this direction. The annual Budget Allocation and Taxpayer Options Report (Objective 3.2) and the periodic technology-impact reviews (Objective 4.1) shall be published in the same open, machine-readable format, using stable identifiers that link budget line items to strategic objectives across agencies.

K-12 Education is the largest single category of General Fund spending, funded primarily through the state's per-pupil funding formula rather than annual legislative discretion. This objective documents the current appropriation without proposing any change.

Health and Social Services spending is dominated by Medicaid, whose state share is driven by enrollment and federal program rules rather than annual legislative discretion; federal funds cover approximately 75 percent of South Carolina's total $8.9 billion Medicaid program. This objective documents the current General Fund appropriation without proposing any change.

Public safety and criminal justice functions are core government responsibilities generally considered non-discretionary. This objective documents the current appropriation without proposing any change.

Higher education appropriations are largely driven by enrollment-based tuition mitigation formulas rather than annual legislative discretion. This objective documents the current appropriation without proposing any change.

This category includes general administrative, cultural, and miscellaneous agency functions and is among the more discretionary portions of the General Fund. This objective documents the current appropriation without proposing any change; the degree of genuine year-to-year discretion within it warrants further examination.

This category includes economic development incentives and natural resource agencies, including the recreational licensing and state park functions addressed in Goal 2's Objectives 2.2 and 2.3. This objective documents the full category's General Fund appropriation without proposing any change.

This figure reflects only the General Fund portion of transportation spending; the great majority of the Department of Transportation's approximately $2.54 billion total budget is funded through dedicated motor fuel user fees and federal highway funds, addressed in Goal 2. This objective documents the General Fund slice without proposing any change beyond what Goal 2 already addresses.

This objective documents the current appropriation for regulatory agencies without proposing any change.