1 Apr 2009
The 700 percent excise tax increase on “large” cigars that Obama signed into law on February 4 goes into effect today. The tax is part of a series of increased tobacco taxes raised for the controversial State Children’s Health Insurance Program (SCHIP).
Under SCHIP, large cigars will be taxed at 52.75 percent, with a cap of 40.26 cents per cigar. This enormous increase, up from the previous rate of 20.719 percent with a cap of 4.875 cents per cigar, has many worried that it will devastate an industry already under siege due to state tax hikes and smoking bans.
Along with the tax on premium “large” cigars, the following tax increases will take effect on April 1:
- -Cigarettes: $1 per pack (up from 39 cents)
- -Small cigars: $50 per 1,000 (up from $1.80)
- -Snuff: $1.51 per pound (up from 58.5 cents)
- -Pipe tobacco: $2.831 per pound (up from $1. 097)
- -Chewing tobacco: 50.3 cents per pound (up from 19.5 cents)
- -Roll-your-own tobacco: $24.78 per pound (up from $1. 097)
- -Cigarette wrappers: 1.2 cents per 50 (up from 1.2 cents)
- -Cigarette tubes: 12.4 cents per 50 (up from 6.3 cents)
Despite the tax increases, studies show that millions of new smokers will be needed for the SCHIP hike to produce the revenue needed to meet funding requirements.
Industry Braces for Impact
While the exact affect on the industry remains to be seen, retailers and consumers are bracing for the negative impact of the massive tax increase.
In an interview earlier this year, CAO President Tim Ozgener told StogieGuys.com that the SCHIP tax increase had the potential to devastate not only cigar retailers, manufacturers, and consumers, but could also lead to widespread unemployment and crime in the Dominican Republic, Honduras, and Nicaragua—the three main sources of premium handmade cigars. He also told us that taxes, even more so than smoking bans, could devastate retailers since cigars are a “non-addictive luxury item,” which smokers could easily cut back on in response to higher prices.
Ultimately, the fear is that taxes could end the cigar industry as we know it. That’s why Rocky Patel of Rocky Patel Premium Cigars said, “I don’t worry about the competition. Every night I go to bed and I worry about the government putting us out of business.”
Is today the day that the government puts cigars out of business? Or will the industry take a hit but eventually weather this SCHIP storm? Only time will tell.
photo credit: Stogie Guys