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Stogie News: Cigar Tax Vote Today, Bush Veto Threat Stands

25 Sep 2007

[UPDATE 2: Text of the bill can be downloaded here. Provisions on the tax increases begin on page 288.]

[UPDATE: George Edmonson reports there was one small victory in House negotiations, as the “floor tax” was eliminated. The “floor tax” also known as the “store killer” for the likeliness that it would bankrupt many B&Ms was a proposed one-time tax on every cigar a store has in inventory.]

Today the U.S. House of Representatives is expected to vote and pass an expansion of the State Children’s Health Insurance Program (SCHIP) that includes a massive tax increase on cigars and other tobacco products, even though as of late last night the text of the bill was still not available. The Senate is expected to pass the bill on Thursday.

President Bush has promised to veto the bill pledging his support for SCHIP, but opposing the Democrats’ expansion of the program to wealthier families. “Instead of expanding SCHIP beyond its original scope, we should return it to its original focus, and that is helping poor children, those who are most in need,” Bush said last week.

Under the Senate proposal, various tobacco taxes funding the SCHIP expansion are being increased by at least 256%. While as of Friday multiple congressional staffers told StogieGuys’ own George Edmonson that they were still negotiating the House bill and trying to reduce the tax cap on cigars, it is believed the House bill will contain the same tax increases.

Under the plan, federal cigarette taxes were increased from 31 cents per pack to $1.00. The 256% increase was then applied to other forms of tobacco such as “large cigars.” The federal excise taxes on large cigars – like the ones we review here at StogieGuys.com – go from 20.719% with a cap of 5 cents per cigar to 53.13% of the manufacturer’s price with a cap of $3. For a cigar that retails for $7.50, the new tax would increase the price of a box of 25 cigars by about $100. The tobacco tax increases are set to go into effect January 1, 2008.

MoveOn.org used Bush’s veto opposition to blast Republicans, writing: “Stop the Republicans from blocking health care for kids.” But such statements are an inaccurate portrayal of Bush and congressional Republicans’ position. While some outside of Congress have called for SCHIP to be entirely eliminated, that is not the position of Bush or the majority of Republicans that oppose the SCHIP expansion.

Outside critics calling for the elimination of SCHIP cite that the program’s regulations drive up the price of private insurance for all, create incentives for lower-middle class families not to climb the economic ladder in an effort to keep SCHIP subsidies, and cause huge costs that “insure four previously uninsured Americans for the price of ten.” However persuasive such points may be, these are not the arguments made by Bush.

Bush’s veto threat is only in opposition to expanding the coverage from families of four earning as much as $72,000 per year, to families of four earning $83,000 per year. In fact, President Bush has said he approves expanding SCHIP to cover well-off families, but only if the states enroll 95 percent of those lower-income children first.

While the debate continues over SCHIP, there is almost no talk about the use of tobacco taxes as a source of funding.

Stogie Guys Analysis

Here at StogieGuys.com, we’ve always pointed out that if a government program is really in the public’s best interest, it would not be necessary to tax a small, already discriminated-against minority such as smokers. Additionally, there has been relatively little discussion about the fact that a tobacco tax funding health insurance creates a perverse government interest in ensuring that there are enough people smoking to maintain funding of the program.

With the veto threat pending, we will continue to watch this story. It is believed that the Senate might pass the bill with a veto-proof majority, but it is unlikely that SCHIP supporters in the House can muster the 2/3 majority needed to override a presidential veto.

Patrick S

Tags: cigars

Drew Estate

15 Responses to “Stogie News: Cigar Tax Vote Today, Bush Veto Threat Stands”

  1. Cigar Jack Tuesday, September 25, 2007 at 7:00 am #

    What are they going to tax when smoking gets to such low levels that the money won't fund programs like this? Alcohol? Fast Food? Condoms?

  2. Ricky Tuesday, September 25, 2007 at 12:11 pm #

    You’re exactly right, Jack, but apparently they don’t want to worry about that just yet. Instead, let’s coddle the ignorant masses and almost completely incapacitate the tobacco industry first. Then they’ll go after something else that seems sinful. It’s absolutely ridiculous.

  3. Jeff's Garage and Ale House Tuesday, September 25, 2007 at 1:15 pm #

    I’ve said it before, I’ll say it again – why am I being made to fund healthcare for someone else’s child? My wife and I decided against having kids because we understand the financial responsibility that it entails. The program as its designed is for children who AREN’T POOR ENOUGH for Medicaid. So, if they aren’t poor enough for Medicaid, their parents work, correct? Why aren’t their parents making the sacrifice to pay for their coverage? They made the decision to have kids, they should be making the sacrifice, not me. I made the decision to avoid having children so I wouldn’t have to pay for these expenses. Looks like I may end up having to pay anyway…..

  4. Mark Bresky Tuesday, September 25, 2007 at 3:59 pm #

    As a liberal and cigar smoker I am against this tax. I’m not a big fan of discriminating against minorities. Why not repeal the 2001 Bush tax cuts for people making over $250,000 a year. That would pay for the program and then some. Oh yeah, I forgot the rich own this government.

  5. Zé do Charuto Tuesday, September 25, 2007 at 7:32 pm #

    As much as I personally don’t want to pay this tax, I think it’s a little silly to call smokers a “minority.” Smoking is an elective indulgence.

    And as for having to “fund healthcare for someone else’s child,” well, you already fund their schooling, library, parks, and all other manner of public services. It is not accurate to differentiate between public services for children and adults, they are all citizens. It is all part and parcel of participating in society!

  6. Zé do Charuto Tuesday, September 25, 2007 at 7:33 pm #

    … that being said, my bargain $3 handmade stogies sure won’t taste nearly as sweet at $6!!!

  7. Jeff's Garage a Wednesday, September 26, 2007 at 4:49 am #

    "And as for having to “fund healthcare for someone else’s child,” well, you already fund their schooling, library, parks, and all other manner of public services. It is not accurate to differentiate between public services for children and adults, they are all citizens. It is all part and parcel of participating in society! "

    Ze, I have to respectfully disagree. Where do we draw the line? What's the next thing we're going to have to fund so a politician can claim to be "doing something for the children"? Remember, this is for children who's parents are far above the poverty line (i.e., not poor enough for Medicaid). What's next, we start accepting higher taxes to pay for food and clothing for these kids? Every child should be able to experience Disney World, so how about a program for kids to go to Disney World if their parents can't afford it? Many 16 year olds have no car, some because their parents maybe can't afford to buy them one. So lets tax some other group to pay for that. Where does it end? Again, its for children not poor enough for Medicaid, i.e, they have parents who work and make decisions on what to do with their money. Let THEM make the sacrifice to pay for their child's medical coverage. Don't punish me because they refuse to. I made the responsible decision not to have kids so I wouldn't have to.

  8. Ze do Charuto Wednesday, September 26, 2007 at 1:48 pm #

    Hmmm. I see your point. “Pick and choose” taxing is a dangerous thing. This tax doesn’t solve the health care problem in America, and it does smack of populist political maneuvering.

  9. Eric D. Monday, October 1, 2007 at 10:32 pm #

    Sad to say, if Hillary or any other liberal get into the White House taxes like these will seem sensible compared to what they will do to us in the future (and yes, I say this with sarcasm). I know both liberals and conservatives enjoy cigars and are against such taxes, but hey, let’s not fool ourselves. The far left want the government to take OUR money and spend it for their government sponsored “feel good” programs. I’ve got friends in Canada who have been waiting years for surgery that took me a month to get. A beautiful system…not. They call it socialism, and even communism in some countries. If it smells like poop, looks like poop, its probably poop. On that note, I’m going to go smoke a big fat juicy stogie and celebrate my right I still have in my backyard…

  10. Smoke Rings Wednesday, October 3, 2007 at 3:39 pm #

    I am greatly opposed to this tax but just can't seem to make some of the numbers I see here add up. If the maximum tax on cigars is $3 a stick, how can the price of a box of 25 be raised "$100 or more"? The tax is absurd, but if we are going to oppose it, we ought to get our facts straight. Please help me understand what I am missing.

  11. Smoke Rings Wednesday, October 3, 2007 at 9:29 pm #

    Just read the text of the bill. it is both better and worse than what is posted here. The excise tax increase is not 256% as I see often repeated in forums such as this. It is an increase to 53% from the current 21%. That’s a little like saying that the state will only execute you three times instead of five times, but it is not a 256% increase. The bad news is that the effective increase in excise taxes is as much as 2,950% because the maximum tax will go from five cents a cigar to $3.00 a cigar. The increase will be proportioanally more on lower priced cigars than on cigars costing $5.65 or more each because that is the price at which the tax maxes out. For example, a $3.00 cigar would cost $4.59 under the new tax, while an $8.00 cigar would cost $11.00. That’s a 53% increase on the lesser priced cigar and 37.5% on the more expensive smoke. Your box of 25 Davidoffs will go up $73.75 under this deal. My $3.00 fist burners will cost $38.00 more. If you look at it that way the pricier smokes just became more affordable. It will be interesting to see what the net increase is in taxes collected on cigars when people just refuse to buy. T

  12. Smoke Rings Wednesday, October 3, 2007 at 9:32 pm #

    Just read the text of the bill. it is both better and worse than what is posted here. The excise tax increase is not 256% as I see often repeated in forums such as this. It is an increase to 53% from the current 21%. That’s a little like saying that the state will only execute you three times instead of five times, but it is not a 256% increase. The bad news is that the effective increase in excise taxes is as much as 2,950% because the maximum tax will go from five cents a cigar to $3.00 a cigar. The increase will be proportioanally more on lower priced cigars than on cigars costing $5.65 or more each because that is the price at which the tax maxes out. For example, a $3.00 cigar would cost $4.59 under the new tax, while an $8.00 cigar would cost $11.00. That’s a 53% increase on the lesser priced cigar and 37.5% on the more expensive smoke. Your box of 25 Davidoffs will go up $73.75 under this deal. My $3.00 fist burners will cost $38.00 more. If you look at it that way the pricier smokes just became more affordable. It will be interesting to see what the net increase is in taxes collected on cigars when people just refuse to buy.

  13. Emerald Thursday, October 4, 2007 at 11:07 pm #

    Please support the tobacco farmers. This cigar tax will doom our fragile industry. We are in the relaxation business….a good glass of scotch, a fine cigar, a crackling fire…people enjoy our products not abuse them . Please fight with me to stop this drastic tax!

Trackbacks and Pingbacks

  1. Stogie News: Bush Vetoes Tobacco Tax Bill - Wednesday, October 3, 2007

    […] The veto, which is the only the forth of Bush’s Presidency, stops a 256% increase of the excise tax on cigars to 53%. The proposed tax also raised the cap on from 5 cents to $3 per cigar. The combined effect would have raised the price of many premium and ultra-premium cigars by $100 or more per box. […]

  2. Stogie Commentary: Hey Cigar Industry, Get Your Act Together! - Monday, October 29, 2007

    […] The cigar industry, from field to shop, turns out a great product. But, I’m sorry, that’s about it. As Congress began Thursday to debate a new version of the SCHIP bill that appears to contain the same tax proposals for cigars as did the earlier legislation, I was distraught. But after the industry’s display earlier, I wasn’t surprised. […]