Mich. OKs Cigarette Tax Increase

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Mich. OKs Cigarette Tax Increase

LANSING, Mich. -- A pack of cigarettes will cost 50 cents more in Michigan under a budget bailout given final approval yesterday by the state Senate. Gov. John Engler said he would sign the bill.

The higher tax will take effect Aug. 1 and give Michigan the nation's fifth-highest cigarette tax at $1.25 per pack. The price of a pack would rise to about $4.60, according to the Detroit Free Press.

The tax increase is a linchpin in a budget plan to avert cuts to schools, health programs, aid to cities and arts grants. Without the agreement the state faced budget shortfalls of $1.2 billion this fiscal year and next, the result of a slowing economy that has produced smaller than expected revenues from income and sales taxes.

The cigarette tax increase began rolling two weeks ago when Engler proposed a 50-cent increase -- 20 cents higher than lawmakers had discussed. Engler, backed by major education groups, proposed earmarking the additional 20 cents for schools to preserve a minimum $6,700 per pupil state allowance in 2004.

Of the remaining 30-cent per pack increase, 25 cents will go to the state general fund; 4 cents to the Medicaid trust fund and 1 cent to Wayne County to pay for health care of indigents -- about $6 million next year.

Tied to the cigarette tax hike is a pledge from Engler to delay a 0.1-percent reduction in the Single Business Tax (SBT) next January -- one step in a planned 23-year phaseout of the tax that began in 1999. The SBT rate is applied to a complex formula of business sales receipts, payroll and property.