Sunday, February 08 2009
The long battle over tobacco taxation to fund an enormous expansion of the State Children's Health Insurance Program (SCHIP) ended on February 4 as the U.S. House of Representatives passed the Senate's version of the bill and President Barack Obama signed it into law.
Smokers across the country will now pay for a $32.8 billion program of health support, bourne mostly by cigarette buyers who will now pay an additional $1.01 per pack. But the bite will hit all tobacco users, including cigar smokers:
=> Federal taxes on large cigars increased significantly from 20.719% of the wholesale price with a tax cap of 4.875 cents per cigar to 52.75% of wholesale with a tax cap of 40.26 cents per cigar. That means that the tax increases will be, as of the effective date of April 1:
> On a pack of five cigars: an additional $1.77;
> On a box of 10: an additional $3.54;
> On a box of 20: an additional $7.08, and
> On a box of 25: an additional $8.85.
=> The new tax scheme treats little cigars like cigarettes and while the tax increase is enormous from a percentage standpoint – more than 27 times the current rate – the actual Federal tax on a pack of 20 little cigars will now also be $1.01.
The House adopted the Senate's version of the bill and rushed it to the floor for a vote without the possibility for any serious discussion or amendments. "There was no opportunity for Republican leadership or members to craft any part of this 280-page bill," said Texas Republican representative Pete Sessions. The bill ultimately passed, 290-135 and was signed on February 4 by Obama.
The cigar industry did much better in the final version of the bill than when the first editions of the SCHIP tax were drafted back in 2007. Originally, the tax cap on cigars was set at $10.00 each, then $3.00, but a significant lobbying effort got the final number down to $0.4026.
In addition, a floor tax originally set to be levied on all retail store inventories – a potential store-killer – was removed as to large cigars only. A floor tax will have to be paid on cigarettes, little cigars, roll-you-own tobaccos, pipe tobacco, chewing tobacco and snuff in stock as of April 1. Look for a lot of sales on those items as stores try to minimize their tax liability.
Altadis U.S.A. chief executive Theo Folz has called the 40.26-cent "compromise" rate "survivable," but there is some gloom in the cigar trade with higher taxes ahead and a dampening of demand due to the general economic situation in the U.S., as well as the creep of smoking bans.
But the SCHIP saga is over for now and the ultimate pain is not as bad as it could have been. The real impacts of the tax won't be known until late summer or early fall and then a true assessment of the damage caused by this new law can be made.
>> Machine-made cigars, especially John Middleton, Inc.'s Black & Mild, are now being cast as the demon by cities as they continue to fight a losing battle against marijuana use.
Washington, D.C. is the latest Eastern city to consider banning the sale of individual cigars outside of cigar shops and cigar bars. Council member Yvette Alexander has proposed an amendment to the District's "Drug Paraphernalia Act of 1982" which bans the sale of items that are used to consume drugs or can be modified for drug use.
"These blunts are purchased solely for an illegal purpose," says Alexander, citing no specific evidence, in comments to the Washington Times. "I think it will have a major impact on the use of marijuana, as now that our neighbors in Maryland have similar laws, it will be harder for anyone to come across these blunts in the future."
Alexander's comments, of course, miss the point entirely. The key is not being able to get a cigar, it's being able to get the marijuana. Allen St. Pierre, director of the National Organization for the Reform of Marijuana Laws, pointed out that "A law like this won't have any effect on any age group. As well intended as the council members may be, this law is just not likely to inhibit the use of marijuana among youngsters or anyone else." He noted that despite a raft of efforts against marijuana since the 1980s, usage has either remained steady or gone up in many communities across the country.
The "Maryland law" cited by Alexander is only in Prince George's County and in Baltimore and the former is being challenged in court by a coalition of cigar manufacturers such as Middleton, Altadis U.S.A., Swedish Match and Swisher International, along with a Maryland-based tobacco distributor.
- Rich Perelman in Los Angeles
Want more? Join us for daily coverage of cigars, accessories, people and issues at CigarCyclopedia.com.
-----------------------------------------------------------------
Reprinted by permission. "Heard in the Humidor" is a publication of Perelman, Pioneer & Company. Copyright 2009; All rights reserved.
