According to the Centre Daily Times,

Nikki Haley said in her State of the State address that “our state’s 7 percent income tax rate stands out and puts us at a disadvantage. In order to keep the ball rolling in our economy, we must bring down our income tax.”

Lawmakers who agree with Haley point to that 7 percent top rate as the highest in the Southeast. However, South Carolina’s effective rate — what people actually pay — averages just under 3 percent, ranking 10th lowest nationwide among the 41 states that tax wages, according to the state’s Revenue and Fiscal Affairs Office.

That’s largely due to South Carolina, unlike most states, basing tax collections on “federal taxable income,” meaning the state taxes only what’s left after home mortgage interest, property taxes and various other deductions and personal exemptions are subtracted. Add to that South Carolina’s generous tax breaks, which rank among the highest nationwide.