JACKSON — Lawmakers expect to give final approval next week to a bill increasing Mississippi’s cigarette tax to 68 cents for generating much-needed revenues and fortifying the state’s diminishing car tag reduction fund.

After being bogged down since January on the legislation, the House and Senate have a compromise to vote on and send to Gov. Haley Barbour. Legislative negotiators Tuesday reached a deal that will generate an estimated $112 million a year.

“We needed to bring this to some type of finality. It’s been going on for a long time — not only this year but in previous years,” said House Ways and Means Chairman Percy Watson, D-Hattiesburg, the House’s chief negotiator on the bill to raise the state’s 18-cent-a-pack tax and ensure car taxes don’t go up.

Watson and his Senate counterpart met Tuesday to shake hands on the 68-cent cigarette tax, which is a compromise between the 49 cents the Senate passed in January and the $1 the House had voted for.

Along with increasing the country’s third-lowest state cigarette tax to 50 cents, House Bill 364 should preserve most of the discounts provided to automobile owners on their car tags. A decline in auto sales revenues prompted the state Tax Commission pare down that discount.

“Hopefully, this will help keep our car tags from going up,” said Senate Finance Chairman Dean Kirby, R-Pearl, who’s in charge of tax legislation in the Senate.

The state Legislature reconvenes May 6 after a five-week break. It delayed passing a state budget and recessed April 1 to give legislators more time to figure out Mississippi’s federal stimulus funds and resolve the cigarette tax-car tag dilemma.

The 50-cent increase would be the state’s first for cigarettes since 1985. It’s in addition to the 62-cent federal tax increase imposed on cigarettes this month.

The cigarette tax increase comes as state government suffers overall revenue declines caused by the worst economic downfall the country has seen endured since the Great Depression of the 1930s.

Revenues for the next fiscal year are projected to be about $400 million below what the state budget began with this year.

Rep. Esther Harrison, D-Columbus, said the tax bill won’t generate enough money but will likely be approved by the House and Senate, where a 60 percent majority is required to pass tax bills.

“It will probably be easy sailing, but I would have gone higher. That’s not enough,” Harrison said of the 68-cent cigarette tax.

Harrison voted to make the tax $1 in January, when the original bill passed the Democratic-dominated House of Representatives 81-39.

The Republican-controlled Senate — which had voted 42-7 for the tax being 49 cents — is expected to approve the proposed compromise, but it’ll be without the support of Sen. Terry Brown, R-Columbus.

“I’m against any tax increase right now until we make some more budget cuts,” Brown said.

Rather than raising the tax, he wants to use some of the state’s rainy day fund to help offset the losses in the state’s car tag reduction fund.

The cigarette tax, to take effect May 15, is projected to generate about $30 million for the fiscal year that ends June 30 and $112 million for the following year.

The bill also sets the state’s tax credit at 4.25 percent for people getting car tags in the upcoming year. It’s been 5.5 percent, but the state Tax Commission decided last week to reduce that to 3 percent. The bill also calls for at least $27 million to be put into the state fund that reimburses counties for revenues lost from the car tag tax break.

Kirby expressed confidence the governor will approve the tax increase, but he had not studied the agreement before legislators made the deal, said Barbour’s press secretary, Dan Turner.

“As of (Tuesday) morning, when the conferees were still working with it, he said he wanted to make sure the revenue estimate was realistic, and he was concerned that lawmakers not spend more money than generated in the legislation,” Turner said.

Barbour vetoed cigarette tax increase bills in 2006 that were combined with a cut in the state’s grocery tax, but he has this year embraced a 60-cent-a-pack tax as part of his budget plan for the Legislature to consider.

Harrison said she hopes much of the new revenues will be used for health-care programs such as Medicaid. She expressed regrets for how the momentum for increasing the cigarette tax has changed in recent months from raising revenues for Medicaid to shoring up the state’s car tag reduction fund.

“It’s been completely turned around,” she said.

The desire to keep car tag prices from skyrocketing is the key to the cigarette tax increase’s passage in the GOP-led Senate.

“That’s the more important thing,” Brown said of preserving the car tax reduction fund.

The Tax commission has been warning since January that the state’s car-tax reduction fund was running out of money. This is caused by a decline in automobile sales. Sales tax revenues are diverted to counties to replace local taxes lost because of the car tag credits, which Mississippi has been providing since 1994.

For health care advocates, the cigarette tax increase is seen as a way to curb smoking.

The combined $1.12 in new state and federal taxes should make cigarettes — with prices early this year averaging $3.55 in Mississippi — costly enough to discourage thousands of people from getting hooked, according to Communities for a Clean Bill of Health.

The coalition of Mississippi health organizations has been urging the Legislature since 2002 to increase the cigarette tax.

“This cigarette tax increase is an overdue investment that will lead to less smoking by our children and a healthier state,” said Roy Mitchell of the Mississippi Health Advocacy Program.