A New Tax for Cigars

| By CA Staff | From Richard Branson, Sept/Oct 2007

Just when you think it is possible that cigars, a legal adult product, have found their rightful place in American life, you get reminded that many people don't differentiate between cigars and other tobacco products. You can't help but end up feeling that the ultimate goal of the antitobacco movement is to outlaw anything that has tobacco in it.

On the surface, the proposal in question seems so righteous. A bill passed by the Senate Finance Committee in late July called for an increase in tobacco taxes to fund an expansion of the State Children's Health Insurance Program. The panel's plan was to raise $35 billion over the next five years to provide insurance coverage for kids and some adults who weren't poor enough to qualify for Medicaid, but still lacked insurance.

Starting January 1, cigarette taxes at the federal level would rise 156 percent, from 39 cents to $1 per pack. But cigars would have their "cap" raised an astonishing 20,413 percent per cigar, from about five cents to up to $10 per cigar. That's not a typo. In fact, cigar industry representatives thought that $10 was a typo, and the bill was meant to increase the cap to 10 cents, which would have been a 100 percent increase. But it really was meant to be $10. In other words, cigars would actually be subject to a disproportionate part of the tax increase.

This isn't just your normal tax increase. It would not only boost the cost of cigars to everyone nationwide (this is a federal tax increase), it would contain a hidden cost aimed directly at manufacturers and importers, called a floor tax. Simply, it means that anything in a manufacturer's or distributor's inventory at the end of the year—which, by the way, they have already paid taxes on to get the cigars into the country—would be assessed another 33 percent of the value of the product, payable by April 1. Most manufacturers say the tax will put them out of business.

The new federal excise tax level to which so-called large cigars would be subject would be 53.1 percent, which, according to the Cigar Association of America, would be one of the highest tax rates of any consumer product in the United States. Currently the excise tax for cigars is about 21 percent, and the new tax would effectively be more than a 100 percent increase. But no other products, even those considered "vices," have such a high tax. For instance, a $3 pack of cigarettes is taxed at an effective rate of 33 percent; a $25 bottle of vodka has an effective rate of 8.5 percent. So large cigars are being singled out. But the real killer is the cap, which essentially means that there is almost no limit on how much the taxes can be raised on cigars.

Within the cigar business, executives are speculating that the price of most hand-rolled cigars would more than double. Some believe the price increases could be even greater. And they all worry that a precedent would be set that would open the door for more tax increases in the future, at both the federal and state level.

Not everyone in the Senate is willing to go along quietly. Sen. Mitch McConnell, R-KY, e-mailed Cigar Aficionado with this comment: "It seems improbable that anyone would think a 20,000 percent tax increase would go unnoticed, but apparently that's what some are hoping. I can't imagine they believe they can argue for a tax increase of that magnitude with a straight face."

It is also incomprehensible that our federal government feels as if it can go after a legal product and slap new taxes on its use to fund programs that bear no relation to the product itself. Cigars are for adults. They are a personal choice that adults should be able to make without having to fund every pet project of every legislator in America. The fact that the people in power would ignore the history of cigars in this country, and the wonderful pleasures that they bring for the people who enjoy them, is astonishing. And it is not right.

By the time you read this, the entire situation may be moot. The Senate may have killed the bill. The onerous cigar taxes may have been changed. The president may have vetoed the entire bill, which he said he would do, not because of cigars but because the legislation would prompt some families to drop their private insurance and sign up with a government insurance plan.

The handwriting is on the wall. Cigar smokers cannot afford to be complacent anymore, not for one minute. The antitobacco forces have taken dead aim at one of our greatest pleasures. They clearly will stop at nothing. Instead of waiting to react to the next onslaught, cigar smokers must be proactive. Write your senator or representative today, and let him or her know how you feel.