COLUMBIA - A Senate Finance subcommittee has approved a plan that would increase cigarette taxes by 53 cents a pack. The plan also decreases grocery sales taxes by a half-cent on the dollar each year.

In nine years, the grocery sales tax would be a penny on the dollar. The cigarette tax is now 7 cents a pack, the third-lowest in the nation.

While voting to raise the cigarette tax late Wednesday, the subcommittee also scuttled House plans to refinance tobacco settlement bonds to pay for Medicaid programs and rejected a tax trade-off plan Gov. Mark Sanford sought.

The Senate Finance Committee is expected to take up the plan Tuesday.

The tax approved by the panel would raise about $150 million for Medicaid programs, but with three-for-one federal matches, about $450 million could be put into Medicaid programs, said Sen. Wes Hayes, R-Rock Hill. "It would certainly give us a strong, recurring source of funds for the Medicaid programs," said Hayes, the subcommittee's chairman.

Some worry that the House's bond-refinancing proposal is risky because tobacco companies may not be able to make tobacco lawsuit settlement payments. Those fears increased this week when cigarette maker Philip Morris said it could not afford its share of the national settlement payment if it had to post a $12 billion bond to appeal an Illinois case involving low-tar cigarettes.

Two years ago, South Carolina sold bonds that will be paid off with future payments from tobacco companies. That puts the risk of settlement payments on bondholders, state Treasurer Grady Patterson said.

The House plan would again leave the state dependent on those payments, Hayes said. "It was much too risky to get back into that business," he said.

House Ways and Means Committee Chairman Bobby Harrell supports the bond refinancing plan. At the same time, "most of us in the House are not interested in raising taxes," said Harrell, R-Charleston. "While we do like the reduction of the food tax and would be willing to support that, we are not interested in raising taxes."

The grocery sales tax initiative isn't new. Three years ago, the legislature began a rollback on grocery sales taxes. A penny was dropped from the tax for more than a year. But former Gov. Jim Hodges vetoed the break two years ago.

Sanford's proposal paired a 53-cent cigarette tax increase with a reduction in income taxes beginning in 2004. Sanford and more than third of representatives and senators have pledged not to raise taxes.

The grocery sales tax reduction is projected to match the amount generated by higher cigarette taxes in the 2008 budget year.

Sanford's plan would have reached that trade-off level in about three years, Hayes said.

While still early in the process, Sanford "has said from the beginning that there has to be a corresponding decrease in exchange for any increase in the cigarette tax for him to sign off on it," Sanford spokesman Will Folks said. "We think it's critical to tie that to tax relief where it is going to have the greatest impact on our economy. Clearly that's income tax relief."

But Senate Finance Committee Chairman Hugh Leatherman, R-Florence, said "the tax on food is one of the most regressive taxes we have."

However, people making just $12,000 a year pay the state's top income rate of 7 percent, Folks said.

"Anything we can knock off that puts more money in people's pockets," he said.