COLUMBIA--The Senate Finance Committee unanimously agreed Tuesday to increase cigarette taxes by 53 cents a pack and to reduce state income taxes.

The tax increase would generate about $171 million for health care programs for the state's neediest residents. Those Medicaid initiatives faced a $212 million budget shortfall.

The committee's approval was a big victory for Gov. Mark Sanford, who started the day threatening to veto a cigarette tax plan if it wasn't tied to a tax reduction that would stimulate the economy.

"We've said all along that the one tax you've got to get at, if you're going to have a positive impact on our economy, is the income tax," Sanford said.

A food tax break "clearly is not going to have the kind of economic impact that the income tax would have in what we critically need in South Carolina -- and that's to get the economy going," the governor said.

"He got everything he wanted," said Sen. John Land, D-Manning.

Sanford says his income tax reduction plan could give taxpayers a $1 billion break within five years. Over 15 years, the state's income tax rate would drop to 5 percent from 7 percent.

While the committee went along with Sanford's income tax plan, they delayed its implementation for about a year. Land didn't want the tax break to go into effect until after state income tax collections reached 2001's pre-recession levels of nearly $2.5 billion, about $60 million more than projections for the 2004 fiscal year.

"That's reasonable," said Finance Chairman Hugh Leatherman, R-Florence.

Smokers would begin paying more for cigarettes about two months after the bill is signed into law. At 7 cents a pack, South Carolina currently has one of the nation's lowest tobacco taxes.

The bill now goes to the Senate Medical Affairs Committee for a review of plans to overhaul the state's Medicaid programs before heading to the Senate floor for debate.

The bill could face stiff opposition in the House, where members are split on whether to allow a tax increase of any form.

House leaders have said that, at least for the upcoming budget year, Medicaid shortfalls can be dealt with by other means. "There are at least a half dozen alternatives to consider," said House Ways and Means Chairman Bobby Harrell, R-Charleston.