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Article published Nov 5, 2003
Governor's plan would cut state income tax

Associated Press

COLUMBIA -- Gov. Mark Sanford said his plan to lower the state's income tax rate would encourage the growth of small businesses and attract large companies interested in relocating in South Carolina.Sanford began a three-day, 12-city tour of the state on Tuesday to discuss his economic stimulus proposal for the legislative session that begins in January.Under the plan, Sanford would increase the tax on a pack of cigarettes to 68 cents, the national average. The state's 7-cent tax is fourth-lowest in the nation. Sanford also would apply the 5 percent state sales tax to lottery tickets, which currently are not taxed. The expected $222 million in new tax money would cover a 15 percent reduction in income tax revenue.The state's income tax needs to be cut to remain competitive for jobs with neighboring states, Sanford said. Job loss has been a serious issue in South Carolina, with more than 15,000 South Carolina workers displaced this year."It's the only tax out there that would universally reach out to every small business in South Carolina," Sanford said in a phone interview Tuesday.Sanford's proposal is a shift from a similar plan he pushed this past session. Under that plan, the increase in the cigarette tax would have provided a funding source for Medicaid, the health care program for the poor, elderly and disabled.The plan was roundly rejected by House Republicans,"I'm a quick learner, or a slow learner," Sanford said. "There were very strong objections in the House to what we laid out last year."But some are concerned that the new plan leaves Medicaid without a stable source of funding, hurting the state's most vulnerable residents. Lawmakers were able to avoid cutting the program this year when they received a one-time, $200 million federal bailout. But the money won't be returning.Sanford's plan "is going to destroy the program," said Sue Berkowitz, director of the South Carolina Appleseed Legal Justice Center, which has worked with some 50 other groups for two years to persuade lawmakers to raise the cigarette tax to pay for Medicaid. "This is pretty scary to think this is what he's going to float.""It is just totally misguided," said state Rep. Joel Lourie, D-Columbia and a candidate for an open Senate seat. "We have a fiscal meltdown in this state, a crisis of historical, unprecedented proportions."Putting the money from a cigarette tax increase into an income tax break does "absolutely nothing to help in this crisis," he said.Sanford would not discuss details Tuesday, but said the executive budget he's currently working on includes a proposal to fully fund Medicaid.Medicaid is "a priority," Sanford said. "The cigarette tax is not the only way to fully fund Medicaid."Others are concerned that a sales tax on lottery tickets would dampen sales, and subsequently, reduce the amount of education funding."I would sure hope that does not happen, because the net effect is just to siphon off some percentage away from education," said South Carolina Education Lottery Commission Chairman John C.B. Smith Jr.Profits from the lottery, which generated $640 million in revenue in 2002, pay for college scholarships, K-12 programs and school buses, among other things.