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Gov. Sanford: Cigarette Tax Shouldn't be Used to Grow Government

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Location: Columbia, SC


Gov. Sanford: Cigarette Tax Shouldn't Be Used to Grow Government

GOVERNOR SANFORD PLANS TO VETO ANY TAX HIKE THAT ISN'T OFFSET BY A TAX CUT

Governor Mark Sanford today reaffirmed his stand on not raising any tax without an offsetting tax cut, saying he would veto the Senate's cigarette tax hike if it comes to his desk in its current form. The governor also called the plan a "double tax increase" for the way it increases taxes immediately, but will also mean having to raise taxes later on to cover future growth in the programs it seeks to expand.

Yesterday, the Senate approved a 50 cent increase to the cigarette tax, which would generate $158 million a year. Of that money, $76.5 million is being used to enlarge and grow 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.

"We agree with the idea of raising the cigarette tax - if there is an offset - because we don't believe all taxes are created equally, and some are more harmful to the economy than others," Gov. Sanford said. "In the business world or in home finances, it would be foolish to take on a new expense that you expected to grow year after year with a source of income that you at best expected to stay the same or fall. Many people have argued that raising cigarette taxes will lower the number of smokers, which means you'd have financial shortfalls in the future in paying for Medicaid. 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. We also have concerns about the part of this bill that seeks to offer premium assistance to a select group of businesses - because while it's certainly well-intentioned, it appears to be another example of government picking winners and losers rather than offering a broad-based benefit, and it creates too many bureaucratic hoops to jump through."

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.

"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 - because as the Federal Reserve has said, marginal rates matter in terms of bringing jobs and investment to our state," Gov. Sanford said.

States' marginal income tax rates are key to their ability to grow the economy. According to a study from the Atlanta Federal Reserve Board, "Relative marginal tax rates have a statistically significant negative relationship with relative state growth." Put another way, the lower the tax rate the greater the state's economic growth.


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