Senate Committee: Use Cig Tax to Pay for Income Tax Cuts

If you're going to use a flatlining tax to pay for cuts in a growth tax, you might as well go all the way.

That's the message from the South Carolina Senate's Finance Committee, which has approved a bill that would use a 45-cents-per-pack increase in the state's cigarette tax to pay for (among other things) eliminating the bottom tax bracket of the state's income tax.

This approach makes us feel a little silly for browbeating the state House for wanting to use the cig tax to pay for grocery tax reductions. In that case, one regressive, zero-growth tax was being hiked to pay for cuts in a regressive, slightly-faster-growing tax. The Senate Committee has basically decided they want to cut something that grows a bit faster.

We've said ad nauseum that the last thing you should ever use cigarette revenues for is to pay for things. As the folks at the Campaign for Tobacco Free Kids know only too well, what the cigarette tax does best is to make people quit smoking-- which means tax collections go down.

Governor Sanford opposes the plan, because a bit of the cigarette tax money would go not for income tax cuts but to create a new health care savings account:

"This is not a revenue neutral plan," Sanford spokesman Joel Sawyer said.

Funny thing is, he's right-- but not in the way he imagines. Whatever this plan raises in the short run, it'll raise a little bit less the next year, a little bit less the year after that. And eventually, it will lose money outright. There's no such thing as a "revenue neutral" cigarette tax swap. But what that means is that the long-run choice made by South Carolina lawmakers this month may end up being unfunded sales tax cuts versus unfunded income tax cuts. And neither is a sustainable option.