COLUMBIA, S.C. - As hundreds gathered outside the Statehouse on Wednesday to show support for a cigarette tax increase, some smokers hung out across the street saying the tax is discrimination.

A proposed cigarette tax increase has become popular this year because the Legislature is searching for ways to pay for Medicaid, a federal program that pays for health care for the state's poorest residents.

"The cigarette tax is a permanent recurring source of funding to a long-term problem," said Anton Gunn of South Carolina Fair Share, a consumer group that has joined about 70 businesses, health care advocates and providers to form a coalition - Cigarette Tax for Health Care.

The coalition wants to raise the cigarette tax 53 cents to a total of 60 cents, but smoker Sam Walker, 67, doesn't agree with the tax increase.

"I think it's a shame that they pick out one group to be prejudice against," Walker said as he took a drag from his cigarette, sitting on a bench at the SouthTrust building across the street from the Statehouse protesters. "Just because I smoke, that's no reason to persecute me."

Walker, a state employee and smoker for 40 years, wasn't the only one feeling singled-out.

"I think the smokers are being discriminated against," said Barbara Gabriel, 66, a bank teller who was enjoying a cigarette on her lunch hour. "If they are going to raise taxes, it ought to be the state sales tax."

But many lawmakers have said they are against raising taxes and Gov. Mark Sanford said he would support a tax increase only if there were a corresponding tax decrease.

The current spending plan for the state's $5.1 billion budget leaves Medicaid about $80 million short of what's needed to maintain current programs, but Republican leaders are pushing a plan to restructure the bonds the state sold after reaching a lawsuit settlement with tobacco companies several years ago.

The coalition described the Republicans' new plan as a "Band-Aid" fix to a recurring problem.

"Their solution to fund Medicaid in South Carolina is filled with fuzzy math and funny money," Gunn said to a crowd of students, businesspeople and health care workers - many in lab coats and scrubs - who erupted in cheer.

It was the second rally in a week at the Statehouse. Last week the American Cancer Society said an increase in the cigarette tax would have a twofold benefit. There would be more money for Medicaid benefits and fewer smokers needing health care often provided by Medicaid and Medicare programs.

Bruce Knight, 51, who works for an architecture firm in Columbia, said he thinks a 53 cent increase would encourage people to quit smoking.

"That would deter me," said Knight, who has been smoking since he was 14.

Smoker Kristen Newman, 27, said cigarettes already are expensive and she would like to kick her habit of 12 years. But she said she would rather see an increase in the sales tax or a return of video gambling than a higher cigarette tax.

"There's plenty of other ways to get money," Newman said.

That seemed to be the thought among lawmakers as well. A House panel working on restructuring the state's Medicaid system on Wednesday rejected a plan to raise cigarette taxes.

Rep. Rex Rice, R-Easley, has been pushing a plan to increase cigarette taxes by 42 cents a pack. Rice wanted the money to provide a stable source of funding for Medicaid and preventive health care programs.

His proposal was reduced to 22 cents a pack, but the six-member panel killed it on a voice vote.