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Cigarette tax increase becoming more likely
By Andy Brack
S.C. Statehouse Report

NOV. 17, 2002 - - After two years of stiff state budget cuts, there's not a lot of fat left. With news of the great likelihood of a third year of cuts, state political leaders face the real prospect of their worst fears: a revenue increase.

To make up a shortfall of more than $330 million, lawmakers surely will cut more state employees, slash some programs and end other state services. But all of their tough work on the $5.6 billion state budget probably won't be enough, many analysts say.

For example, take a look at the state's Medicaid program, which provides health care for seniors and children. Last year under heavy pressure and lobbying from the state's seniors, lawmakers found enough one-time money to keep the program solvent and receive millions in federal matching funds. This year just to keep the program afloat at the same level, they have to find about $146 million in new funds - - at a time when the total state revenue growth is projected to increase only about $60 million.

Last year, lawmakers raided one-time monies from the federal tobacco settlement - - more than $103 million - - to help fund a $181 million Medicaid shortfall. This year, the tobacco settlement monies are no longer there.

So what are the state's leaders likely to do? A solution that is sure to gain backing is an increase in the tax on cigarettes.

Currently, South Carolinians pay 7 cents per pack in taxes on cigarettes. It's one of the lowest rates in the nation. The national average is 60 cents per pack.

Last year, a measure proposed by S.C. Sen. Verne Smith (R-Greenville) to hike the cigarette tax to bail out Medicaid failed on the Senate floor. A similar measure failed in the House.

Now with money harder to find, lawmakers are eyeing the tax a little more closely because a boost to the national average would generate about $171 million per year, according to Senate budget sources. That's more than enough to deal with a looming Medicaid shortfall. Unlike a tax on everyone, it would be a user fee - - a tax on the people who use cigarettes.

Such a fee won't be popular in the farming community and to many in the Pee Dee because it attacks farmers' biggest cash crop, tobacco. But proponents of an increase are expected to argue that raising the tax will have a lot of spin-off effects.

First, new revenues would be set aside into a trust fund to pay for Medicaid in the future. Currently smoking costs about $854 million in annual health care costs in South Carolina, according to the National Center for Tobacco-Free Kids. Because some $307 million of those costs are covered by Medicaid, they'll argue it makes sense to have smokers pay for health costs caused by smoking.

Next, shifting the cost burden to smokers should lower the overall burden paid by non-smokers. Currently, every South Carolina household pays an average of $511 every year in taxes to fund smoking-caused government expenditures, according to the center. In other words, everyone is paying for health costs of smokers now; by shifting the burden, those who generate the problems will pay more of their share.

Finally, health advocates will argue a cigarette tax increase will cause more people to kick the habit, which will lower health costs over the years. About 36 percent of South Carolina's high school students - - some 81,000 youths - - currently smoke. Almost 25 percent of South Carolina adults, about 729,000 people, are smokers. Studies show that for every 10 percent increase in cigarette prices, overall smoking drops 3 percent to 5 percent, and youth smoking drops 7 percent.

Nobody likes taxes, but this year with the budget in such a mess, state lawmakers will have to look at ways to boost revenues. Raising cigarette fees is one of the most painless ways to do it.


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