BLYTHEWOOD, S.C. (AP) - A proposal to lower the state's income tax would put more money back into the pockets of small businesses and individual income earners, Gov. Mark Sanford said Monday during a tour of businesses.

Families earning $40,000 a year could save about $800 each year on income taxes, Sanford said. His proposal would lower the current state income tax of 7 percent to 5 percent over 15 years. That's when the full savings would kick in.

More importantly, Sanford is touting the plan to improve the economic climate in South Carolina and attract more businesses here. Sanford toured a small North Charleston print shop, a Greenville technology firm and a Blythewood electronics manufacturing company.

Under Sanford's plan, state taxes on cigarettes would be increased to 53 cents a pack, up from 7 cents a pack, with the expected $150 million annual revenue dedicated to Medicaid programs.

That tax increase would be coupled with the income tax reduction, which would help "create a more vibrant economy in South Carolina," Sanford said.

Each dollar in income tax relief generates about $1.25 in economic activity, Sanford said. The governor expects his proposal to generate about $7 billion in additional economic activity in South Carolina over the 15-year life of the plan.

"We've said all along that income tax relief is key to creating jobs and spurring economic growth in South Carolina," Sanford said. "Central to the notion of stimulating our economy is actually investing in our economy and locking in a tax plan that slows the future growth of state government."

The cigarette tax failed in the Republican-controlled House, where members vowed not to support new tax increases.

However, a Senate Finance subcommittee last week approved a plan that would increase cigarette taxes by 53 cents a pack, up from 7 cents a pack, but rejected Sanford's tax trade-off plan. The subcommittee adopted a measure that would decrease sales taxes on groceries by a half cent each year.

Some Democrats say they are open to Sanford's plan, but first want to see the state's revenue on income taxes increase.

"We need to grow back (state revenues) before we start any more tax reductions," said Sen. John Land, D-Manning. "Tax reductions got us in the problem that we're in."

House Minority Leader James Smith, D-Columbia, said it would be better to have an income tax reduction in a more robust economy.

"If you want income tax relief, I think that's fine. But don't pursue it when we've cut into our base so much that we're not providing the basic, essential services of government," Smith said.

Sanford argues that a lower income tax would provide a more favorable economic climate and encourage businesses to locate in South Carolina.

"That in turn drives job growth and personal income - two of the keys to revenue growth in South Carolina," Sanford said.

South Carolina currently has the second highest income tax rate in the Southeast behind North Carolina and the 13th highest income tax rate in the nation.