Tug of War in SC Over Cigarette Tax

Even with a projected $1 billion budget gap looming, there are some items in South Carolina that are apparently “off the table” when it comes to taxation. Chief among them? Cigarettes.

South Carolina enjoys the lowest cigarette tax in the country at a paltry 7 cents per pack. Nope, that’s not a typo: 7 cents. The next lowest state is Missouri, with a 10 cent increase over South Carolina: 17 cents per pack. In contrast, the overall average tax by state is $1.38 per pack; my own state of Pennsylvania is not too far off, at $1.60 per pack. You can see all of the rankings through 2010 here (downloads as a pdf).

This week, the Senate voted to change that by increasing the tax by 50 cents, to 57 cents per pack. That still puts South Carolina comfortably at the bottom when it comes to taxing cigarettes (they’d be tied with Idaho for the 8th lowest cigarette tax) and would boost the state’s coffers by $136 million. Even more appealing? At least $125 million of the funds raised by cigarette tax would be matched by a ratio of 3-to-1 by the federal government. So it was no wonder that the Senate voted (again) to pass the tax by a margin of 41-1; if the vote survives, it would be the first increase in the tax since 1977.

However, declaring the tax a done deal is a bit much said. Gov. Sanford (R-SC) – yes, that Governor Sanford – has threatened to veto the cigarette tax. Sanford, who will leave office in 2011, has indicated through his spokesman that he won’t allow an increase because: “A cigarette tax does nothing to stimulate the economy or create jobs.”

True, it’s not a job creation bill. But when did that ever stop SC from trying to raise taxes before on say, porn? I don’t think the legislature is making any attempt to couch the tax hike as anything more than… a tax hike. But Sanford is planning to hold his ground, setting the stage for a veto battle.

To override a gubernatorial veto, the Senate and the House would have to muster at least a two-third vote. The initial House vote on the matter was 97-22 and the Senate vote was 41-1. However, word of a veto has reportedly caused some Republicans in the House to reconsider their initial vote, making what will happen next a bit unclear. The House was unable to block Sanford’s last cigarette tax veto two years ago.