Local cigar shops are saying a U.S. Senate proposal that would skyrocket the cost of retail cigars would put them out of business. And one member of Tennessee’s Senate delegation is lining up behind them.
The new tax proposal would increase the federal tax on cigars from the current 5 cents each to 53 percent of the manufacturer’s price to a distributor, with a cap of $10 tax per cigar.
In an oft-quoted example, a cigar that retails for about $4 now could jump to around $14, once the new federal tax is added and existing state taxes and profit margins are worked in.
“It’s completely unreasonable,” said Scott Partridge, manager of Uptown’s Smoke Shop on Hillsboro Road.
“It’s one thing for an industry to pay their fair share, or even more than their fair share,” said Partridge. “But this would put most cigar shops across the country out of business.”
The new tax would be part of the funding for an additional $35 billion per year to be spent over the next five years on the State Children’s Health Insurance Program (SCHIP), a grant program that gives federal money to states for medical coverage for low-income children.
The vast majority of the new funding, however, would come from a $1 tax per pack on cigarettes, which is now 39 cents.
The proposal has already passed the tax committee in the Senate and should end up in a floor vote either later this week or early next week.
Tobacco industry insiders said the proposal, backed by members of both parties, should pass the Senate, although its prospect in the House is less certain. President Bush has said he would veto the measure, in part because of the increased taxes on tobacco.
Tennessee’s senior senator is lining up on the side of cigar retailers and smokers, if not the cigarette industry.
Lee Pitts, press secretary for U.S. Sen. Lamar Alexander, R-TN, said Alexander “thinks the proposed tax on cigars is ridiculous.” And Alexander does smoke an occasional cigar, Pitts said.
“[Alexander] says it just goes to show that there are people in Washington who’ll try to tax anything,” said Pitts.
Laura Lefler, press secretary for U.S. Sen. Bob Corker, R-TN, said the senator was still studying the proposal.
“Our focus now is on what the appropriate funding level for the SCHIP program should be and after determining that, we’ll then focus on how revenues, if any are necessary, should be generated,” said Lefler.
The potential of the bipartisan measure eventually passing still has many local cigar professionals lit up.
Tim Ozgener is president of cigar maker CAO Cigars in Nashville, which is entering its 30th year of cigar business in 2008. He said the measure is “particularly punitive on large cigars.”
Ozgener said that the potential tax increases upon the $83 billion annual retail cigarette industry and the $3 billion annual retail cigar industry couldn’t be seen as similar.
“I don’t like cigarettes, and I don’t smoke cigarettes. They’re simply a method for nicotine delivery,” said Ozgener. “But when you ferment tobacco, as in cigars, you have a lot of the tar and nicotine evaporate. It’s not all gone, but then you’re not supposed to inhale cigars either.”
“My whole thing is just to separate it from the cigarettes. It’s not an apple-to-apple comparison,” said Ozgener.
And besides putting “mom-and-pop retailers” out of business, Ozgener said that the effect would be even worse in third-world countries in Central America, South America and Africa. That’s where cigar tobacco is usually grown, cut, fermented and rolled, often for eventual shipment to the U.S., the world’s largest cigar market.
“It would make a lot of poor people in those countries even poorer,” Ozgener said. Finally, he said, the tax would inevitably increase the black-market for cigars.