FLORENCE — Lowering the state income tax is the key to jump-starting a stalled S.C. economy, Gov. Mark Sanford said Tuesday in announcing his new tax plan.

Keeping more money in taxpayers’ pockets will start “a virtuous cycle” of small business growth, Sanford said from the construction site of the future home of ACS Technologies.

Ten years ago the homegrown firm had about 30 employees. Today more than 300 work for the company that produces software aimed specifically at faith-based groups and churches.

“This is what we would like to see being created in so many parts of South Carolina,” Sanford said.

The governor’s plan, which he’s touting in a three-day, 12-city tour, would:

• Raise the tax on a pack of cigarettes to 68 cents, up from 7 cents.

• Apply the state sales tax to lottery tickets, meaning a ticket that now costs $1, could cost $1.05.

• Use the new tax money to lower the income tax rate to 5.9 percent, down from 7 percent, for those who make more than $12,000.

Less than a mile from where the governor spoke, Kathy Ham was worried Sanford’s plan was more nightmare than dream.

“They should leave the lottery alone,” said Ham, manager of the Scotchman convenience store on David H. McLeod Boulevard. “The lottery is supposed to be helping education. You’re going to drive people away.”

Bonnie Elam, 52, of Creston in Calhoun County, smokes generic brand cigarettes. She buys them at Native American reservations where state taxes aren’t collected.

“I know we need to lower income taxes, but as far as raising taxes on cigarettes? You’re punishing one category of people,” Elam said.

She suggests instead raising the state sales tax on everything.

Alonzo Garrett of Columbia is more worried about where the cigarette tax money would go. The 42-year-old non-smoker said raising the cigarette tax to fund health care would make more sense.

Besides, he said, too many things are taxed now.

“There’s a tax on almost everything you purchase,” said Garrett, who operates a stand selling T-shirts and CDs outside the El Cheapo gas station on Percival Road. The whole point of the lottery, he said, was to raise money for education. Taxing lottery tickets won’t help that, he said.

But Sanford said it’s necessary to lower income taxes. He said studies by the Beacon Hill Institute at Suffolk University in Boston have shown that states that lower income taxes reap big economic benefits.

Lowering the income tax would make South Carolina a “relatively more attractive place to work and, therefore, invest,” said David Tuerck, Beacon Hill director.

Democrats are worried that Sanford’s plan would leave Medicaid without a stable funding source. They and several Republicans hope to increase cigarette taxes to pay for Medicaid, which provides health care for the poor and disabled.

The state needs an estimated $200 million for the 2004-05 fiscal year for Medicaid alone. Sanford previously proposed using the cigarette tax increase to pay for Medicaid, accompanied by a gradual income tax reduction. But lawmakers rejected that plan last year.

State Rep. Joel Lourie, D-Richland, said he’s surprised to see Sanford “pull a 180” on the cigarette tax. “To see him abandon that philosophy so quickly is a great concern.”

Reach Gould Sheinin at (803) 771-8658 or asheinin@thestate.com