COLUMBIA -- The budget Gov. Mark Sanford will propose for next year would lower the state's income tax by allowing residents to choose a flat tax.
Sanford would raise the state's lowest-in-the-nation cigarette tax to 37 cents a pack from 7 cents to offset the $107 million income tax cut.
Sanford said Wednesday his plan would make the state more business-friendly and healthier.
"Rates matter in terms of bringing jobs and investment to our state," Sanford said in a statement. "This plan has a host of benefits when it comes to improving the quality of life for thousands of South Carolinians by impacting the cost of smoking, and therefore the rate of smoking."
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Under the plan, residents could choose to pay a flat 3.4 percent income tax rate. In exchange, they could claim no tax deductions or credits.
The state's top income tax rate is 7 percent. S.C. taxpayers can reduce their tax bill by claiming deductions or credits.
A flat tax would benefit high wage earners, Sanford said, but also those who rent rather than own their residences and have no large deductions.
However, passing a higher cigarette tax raises a host of issues. The largest is -- Where should the money raised be spent?
Last year, the House approved raising the cigarette tax. However, the hike stalled in the Senate, where it will be on the agenda in January.
Many legislators say any money from a higher cigarette tax should go to pay for health care or to expand health coverage for the estimated 700,000 uninsured South Carolinians.
Others, including Sanford, oppose raising the tax unless another tax is cut equally. Still others oppose any tax hike.
Advocates say more than 70 percent of S.C. residents surveyed support raising the tax.
"The vast majority of South Carolinians support a cigarette tax tied to paying for health care," said Kelly Davis, spokeswoman for the S.C. Tobacco Collaborative, a coalition of health advocates and public interest groups.
Davis said the group was pleased Sanford was considering a cigarette tax increase.
State Sen. Joel Lourie, a Richland County Democrat who supports raising the cigarette tax, said it is unclear when the Senate would take up the issue. But, he added, "We need to have that debate this year and resolve it once and for all."
The tax swap is contained in Sanford's budget for the state's fiscal year that starts July 1.
Lawmakers are not required to follow the governor's spending plan. Their spending plan may or may not include Sanford's recommendations.