The Palmetto Insider

The blog of the South Carolina Policy Council

Cigarette Tax Increase: Corporate Welfare First, Medicaid Second

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As we predicted before session began, there was a fair chance the General Assembly would try to raise the cigarette tax this year. The House has already passed a 30-cent per pack tax increase via a budget proviso. (To read our review of the new House budget, click here.) The measure would theoretically expire after a year and need to be reauthorized in subsequent budgets.

Raising the stakes, the Senate passed on second reading a 50-cent per pack tax increase.

The increase is the cornerstone of a bill (3584) passed last year by the House as part of a half-hearted lurch toward free market health care reform. The House proposal would have offered subsidies to Medicaid clients to purchase health insurance on the free market. Instead of subsidies, we argued for deregulation. Still, injecting even subsidized market forces into Medicaid would have been better than nothing.

The House measure, however, stalled – primarily owing to objections by Senator John Land who strenuously argued we should give the revenue “all to Medicaid.” “It’s hard to argue against that,” added Land. Look at that again, “all to Medicaid.”

And that has been the story ever since. Abandoning any pretense of tying the cigarette tax increase to health care reform, the House proviso passed as part of the 2010 budget allocates the new tax revenue to a Medicaid Reserve Fund (oh, and also, agricultural marketing; and the General Reserve Fund; and the General Fund, too).

The refrain was picked up by The State as well, which asserted that without the tax increase Medicaid services could be cut. As we wrote last month, though, the real reason the cigarette tax was being increased was to subsidize the state’s ever-growing economic development commitments.

And so it has come to pass.  The Senate gutted the original House bill, and the new revenue will be used for:

  • $5 million in annual funding to the Medical University of South Carolina for cancer research;
  • $5 million in annual funding for a smoking prevention fund;
  • More money for agricultural marketing (five hundredths of a cent of the surtax on each cigarette);
  • And, wait for it … $3.5 million for the I-95 Corridor Authority.

Last of all, remaining revenue will be deposited into a Medicaid Reserve Fund.

For those of you who haven’t heard, the I-95 Corridor Authority would be charged with carrying “out economic development and educational improvement activities, which in the opinion of the authority, “will improve the economic conditions in its member counties.” Grants from the authority would be distributed to counties located within 30 miles of I-95 that have a population less than 40,000.

The new agency would be authorized to enter into whatever partnerships or contracts would further its ends, and could also acquire and purchase whatever property it might consider necessary.

As it turns out, Senator Land is cosponsoring the legislation that would create the I-95 Corridor Authority. Hear his passionate plea to use funding, that would otherwise go to Medicaid, for the I-95 economic development project.

As Land notes, though, farmers in his district fear the tax increase will cost them jobs – if not their very livelihoods.

And, indeed, it will. Economists estimate the tax hike will kill 4,100 jobs and reduce real disposable income for South Carolinians by more than $200 million.

Never mind that. Clearly, lawmakers believe their own economic development plans will produce more fruit than letting the free market work. In other words, they believe more taxes and more government intervention are a better strategy for attaining prosperity than is more freedom, more choices and more individual initiative.

To find out more about how well that’s working, click here.

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Written by kinneyet

April 1, 2010 at 12:48 pm

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