Gov. Tom Vilsack revealed budget proposals this week that would push for greater revenue streams through a higher cigarette tax and the re-establishment of the Grow Iowa Values Fund.

Republicans countered the governor’s proposals with promise of tax relief for Iowa’s youth.

“The budget we proposed today is designed to uphold our responsibility to the young people of this state to ensure they can reach their fullest potential by investing resources in our education and our schools at every level,” Vilsack said at a town hall meeting in Waukee on Monday.

He also spoke about the need to increase the flow of income for the state government.

Vilsack said the tax reductions made during the past 11 years have put the state at a point where serious changes need to be considered if lawmakers want to maintain a balanced budget and continue to fund programs. Increasing the tax rate on cigarettes, he said, was a way to fund an “ailing Medicaid program” in Iowa.

“Today, your state pays out $235 million of your hard-earned tax dollars to pay for medical expenses related to the use of tobacco products,” Vilsack said.

“We believe that the wiser choice is to take a look at the tobacco tax because of the inequity, and because we know that if the tobacco tax is raised, fewer young people will smoke.”

He said the state receives only $88 million each year from the tobacco tax. The tax rate on cigarettes has remained at 36 cents since 1999, and the proposed 80-cent increase in the tax would create an estimated $130 million in extra state revenue. Missouri is the only neighboring state with a lower tax. According to a poll conducted by The Des Moines Register in January, 70 percent of Iowans support imposing a $1 per pack tax on cigarettes. In smoking households, 36 percent favor the tax hike.

Vilsack also touted the Grow Iowa Values Fund, a 5-year, $800 million investment to make the state more attractive by stimulating the economy and adding 50,000 jobs. Legislators offered other versions of the plan as well, including one that would implement the goals of the Values Fund with half the cost. According to a recent study by the Legislative Fiscal Bureau, incentives offered to Wells Fargo and Trans Ova Genetics would end up costing the state money in the long run.

Senate Republicans also revealed a plan last week designed to keep Iowans from leaving the state, proposing to eliminate the state income tax for people younger than 30. The tax break would put an average of $600 back into the pockets of those who qualify.

“I’m certainly interested in ideas to make Iowa attractive to young people,” said Sen. Herman Quirmbach, D-Ames. “But frankly, I think Iowa is already attractive.”

He said people who are starting a family see Iowa as an affordable place to raise children, and the savings from mortgage costs alone would easily outdo a break in taxes.

“It doesn’t matter what your tax system looks like,” Quirmbach said. “If you haven’t got a job, then it doesn’t matter.”

Quirmbach said he also worries the tax break, which may cost the state $200 million each year in revenue, would lead to service cuts, which could make the state less attractive.

“I’m planning on sticking around Iowa anyway,” said Russ Graves, a recent ISU graduate. “But a tax break would be a bonus.”

Senator Jeff Lamberti, R-Ankeny, said the income tax break for those younger than 30 is more feasible than the Grow Iowa Values Fund, which he said would take 25 years to pay the bonds required to fund the break.

“Our response to the Democrats is this: If you don’t like our plan, fine; bring another proposal to the table,” Lamberti said.

— Tom Barton contributed to this article

from Des Moines.