Cigarette Tax Increase

Written by: Sven Larson, PhD

The tax increase passed by the General Assembly, and vetoed by the Governor, would have used new revenue largely to expand Medicaid eligibility. Medicaid costs are rising at 8 percent annually, according to the U.S. Department of Health and Human Services. Meanwhile, the tax increase would actually cause tobacco revenue to decline over time as higher prices reduce demand.

Assuming Medicaid costs continue to rise at the same rate as they have over the past decade, South Carolina would need $113 million by 2014 to sustain Medicaid funding, but only $73 million in cigarette taxes would be collected. The resulting $40 million gap would force lawmakers to tap money from the state general fund, which would lead to a shortfall that would ultimately cost all taxpayers.

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