30 years, and still no increase in S.C.'s cigarette tax

COLUMBIA -- This was supposed to be the year South Carolina raised its lowest-in-the-nation cigarette tax.

The bill made historic progress in passing the House after a seven-year push by advocates, but the session ended with the Senate failing to vote on the issue.

The bill, advocates and lawmakers said, failed for a number of reasons:

• An inability to decide how cigarette tax revenue would be spent, whether on health care, tax cuts or something else;

• other issues tacked onto the bill, including adding a tax stamp and changing the way smokeless tobacco is taxed; and

• the threat of a filibuster from a handful of anti-tax senators. Some lawmakers worried the cigarette tax debate could interrupt work on the state's budget, a Transportation Department overhaul and other high-profile issues late in the session.

But for the first time it appears a majority of lawmakers are ready to raise the state's cigarette tax, and a major tobacco company is supporting part of the effort.

Today marks 30 years since South Carolina raised its cigarette tax.

Since July 1, 1977, when South Carolina last raised its tax to 7 cents a pack, every state in the country and the District of Columbia have raised their tax cigarette tax at least once. Since 2002, 43 states have raised their cigarette tax a total of 75 times.

South Carolina's cigarette tax is nearly a dollar a pack less than the national average and roughly 30 cents a pack less than the Southeastern average.

"It's been 30 years, so it's not something that people want to pass and move on," said Kelly Davis, spokeswoman for the S.C. Tobacco Collaborative, a coalition of health and public interest groups supporting a cigarette tax increase.

The issue will return with lawmakers in January. Davis said public and political sentiment about the tax has changed.

While there is wide support for the cigarette tax, lawmakers are hung up on how to spend the money.

The public is convinced as well, Davis said, citing polls showing better than 70 percent support statewide for raising the tax.

"The drumbeat of that message over seven years has started to resonate," Davis said. "We can keep kids from smoking. We can save lives. We can reduce public health care costs."

An identity crisis

But while advocates tried to make the benefits of raising the tax clear, the bill itself suffered from an identity crisis.

In order to win over House votes, sponsor Rep. Rex Rice, R-Pickens, allocated the estimated $107 million that would be raised by a 30-cents-a-pack increase to be spent on a grocery sales tax cut, and not health care. To keep the bill alive -- and give the Senate a chance -- supporters voted for the bill.

In the Senate, the proposed tax increase was raised to 45-cents a pack, with the estimated $153 million in added state money split between health care and income tax cuts.

Sen. Jake Knotts, R-Lexington, one of eight senators who have threatened to hold up debate on the bill, said any cigarette tax increase should be used for health care. Knotts opposed raising the cigarette tax to cut another tax.

"It's really a no-brainer," Knotts said. "We got a Medicaid problem in this state. If you're going to pass a tax, make it pay for what it caused."

In the office of Palmetto Candy and Tobacco in the Vista, owner Tom Jackson agrees.

As a small-business owner, Jackson said subsidizing the cost of health care for his seven employees is more important than the number of packs of cigarettes he sells. A 30-cents-a-pack increase, Jackson said, would raise money for the state's Medicaid program, which pays health costs for the poor, and keep the state's cigarette prices competitive.

"I think it's fair," he said. "It's reasonable, it should pass."

But with the state enjoying a $1.5 billion budget surplus this year, others opposed raising any tax at all.

Anti-tax groups, such as the South Carolina Association of Taxpayers, spent $60,000 on radio ads around the state, urging listeners to call their lawmaker.

"We dug in," said Sen. Larry Grooms, R-Berkeley, when supporters said they had enough votes to shut down a threatened filibuster.

Others, such as Sen. Danny Verdin, R-Laurens, said he opposed the bill, in part, because the tax stamp would hurt state wholesalers. Palmetto Candy and Tobacco's Jackson, a cigarette wholesaler, said a proposed tax stamp would cost him millions in new equipment and opposed the change.

The stamp would require wholesalers to mark every pack of cigarettes sold in South Carolina.

But for Philip Morris USA, a major tobacco company, the tax stamp was the key provision. Spokesman Bill Phelps said the company would not oppose a 30-cents-a-pack increase as long as the state required the stamp. Most other cigarette companies lobbied against the tax.

A stamp, Phelps said, would help law enforcement prosecute cigarette smuggling and counterfeiting.

"If the state is going to consider an excise tax, it should include a tax stamp," Phelps said. "We think it's going to protect legitimate businesses."

Another change proposed would tax smokeless tobacco according to its weight and not its cost.

With so many changes considered, Verdin said, the Senate should take its time and hold a public hearing.

Senate leaders, worried about prolonged debate tying up work at the end of the session, ran out the clock without voting on the bill.

But this was the first year of a two-year legislative session. The bill will return with lawmakers in January, and it still sits atop the Senate schedule.

"We fully expect it to be the first big issue of the next session," Davis said.