Fiscally Responsible Government: 2023-24 Freedom Agenda in Review

Now that the General Assembly has adjourned sine die, we are taking a look back at the 23 policies Palmetto Promise proposed in the 2023-24 Palmetto Freedom Agenda at the beginning of the legislative session. Did our Freedom Agenda policies make it into law? Or, at the very least, did they start a conversation that future General Assemblies can act upon? 

Today, we look at the five policies we proposed for a Fiscally Responsible Government.

As a reminder, each policy is marked with one of four symbols to match its status ✅ = signed into law, 📝= conference committee report pending, ⌛ = passed one chamber but fell short, ❌ = no movement. 

17. Allow Full Expensing for Research ❌

The Tax Cuts and Jobs Act (2017) allowed employers to depreciate capital expenditures in year one. TCJA did the same for research and development expenses. But due to provisions in the TCJA, this “full expensing” began to wind down in 2023. Now employers may write down a portion of expenses immediately but must depreciate the remaining value over multiple years. Beginning in 2027, all expenses must be depreciated over time. This is concerning, particularly with the effects of Biden-era inflation. Renewing the provisions of TCJA is a federal matter, but South Carolina can “decouple” from the federal code in this area and allow capital as well as R&D expenses to be depreciated fully for state purposes immediately. Failure to allow full expensing federally could cost thousands of jobs, particularly in manufacturing. The General Assembly should act in 2025 to protect South Carolina companies by allowing state full expensing. With 500 companies in automotive-related industries alone, the effects would be immediate. 

18. Limit Pension Liability ❌

A dangerous but silently ticking time bomb in our state’s fiscal policy is unfunded pension liability. The simple truth is that the ratio of the assets of our state pension system to its liabilities is out of whack, particularly compared to our neighbors. In a fully adopted defined contribution model, the state will contribute a set amount on behalf of a state employee. This will put the state retirement system on the road to recovery and will move South Carolina away from the silent killer—the defined benefit model. We are hoping 2025 will be the year that the General Assembly hears the ticking.  

19. Control Local Debt, Taxation, & Spending ❌ 

Good financial management at both the state and local levels means keeping an eye on taxation levels, spending, and debt. South Carolina currently fills two rainy day funds and has created new contingency funds for the tax windfalls of recent years. But, we are spending much of the surplus as well. It is time for hard spending caps at the state level. At the local level, according to several respected national analysts, debt is the problem. There was no action on spending, taxation, or local debt in the 2023-24 General Assembly. 

20. Enact Tax Reform ✅

Our fiscal wish for the 2023-24 General Assembly was that it would pass comprehensive tax reform. We put a proposal on the table back in 2017. Its principles are still valid. Comprehensive tax reform means addressing individual income taxes, sales taxes, property taxes, and business taxes. The legislature made a good start in 2022 by cutting and flattening individual income tax rates and buying down some business rates. The 2025 Fiscal Year budget accelerated this income tax cut even further, taking the 6.4% rate down to 6.2%. We support long-term income tax reduction rather than one-time tax rebates. But property taxes and sales taxes must also be addressed, and in the coming years, we hope to see the General Assembly take on comprehensive tax reform that addresses all three types of taxes and implements a flatter, lower individual income tax rate for all.