Governor Vetoes Cigarette Tax

BILL UPS TOTAL TAX BURDEN, VIRTUALLY ENSURES FUTURE TAX INCREASES

Columbia, S.C. - May 27, 2008 - Governor Mark Sanford today vetoed H.3567, a bill that would have increased the state's cigarette tax by 50 cents - but dedicates the money to expanding Medicaid and other healthcare programs in such a way as to guarantee future tax increases.

"We've been calling for an increase to the cigarette tax for five years, but the question has always been what happens to the money," Gov. Sanford said. "While I'd applaud the General Assembly for finally moving a cigarette tax proposal to my desk, I can't in good conscious sign off on something that both increases the overall tax burden, and is completely irresponsible in the way it expands a host of Medicaid benefits without any way to pay for them in future years. That gives state government three alternatives to keep providing those benefits - raise taxes, cut other programs, or start encouraging people to smoke more to foot the bill."

During the news conference, the governor showed the following video: http://www.youtube.com/watch?v=WxI4Q-4rbbY, a tongue-in-cheek look at the mistake of tying healthcare coverage to cigarette tax revenues. The video can also be found at www.youtube.com/governorsanford.

The tax increase would generate $158 million a year. Of that money, $76.5 million is being used to expand Medicaid benefits. Based on current Medicaid growth numbers of eight percent annually, $165.2 million will be needed to provide that same level of benefits 10 years from now - a plan the governor said was one more example of unpaid for future political promises. The governor had called for the money instead to be used to cut another tax, preferably the income tax.

"As a state, we ought to always be in the business of looking for ways to make our tax structure more competitive, and we continue to believe that money from a cigarette tax increase would best be used to provide meaningful and long-lasting tax relief to South Carolinians, particularly as our economy heads into uncertain times. A lowered and flattened income tax would represent a significant step towards making our state more attractive, and improving our competitive position when it comes to growing our economy."

An alternative Gov. Sanford has offered is using the increase in the cigarette tax to offset an optional flat tax. The proposal would give South Carolinians two options for paying their taxes - to either pay the current 7 percent rate and be eligible for current deductions, or to pay a flat tax of 3.4 percent with no deductions. Additionally, the flat tax would put South Carolina more in line with other Southeastern states' income tax rates. At 7 percent, our state’s rate is effectively the highest in the Southeast.

Gov. Sanford's veto message H. 3567 (Cigarette Tax).pdf