Tax Threatens to Extinguish Cigar Sales

Aug. 2, 2007 — -- In Washington D.C., the scene at J.R.Cigar meets expectations: businessmen smoking stogies on their lunch breaks, an employee wheeling a cart over to a customer lighting up a Don Diego, the lingering scent of cigars permeating the air, light music playing in the background ...

But it's a scene that may change if a newly signed House bill that threatens to hike the price of cigars by doubling the tax on premium cigars -- from 20.7 percent to almost 45 percent -- becomes law.

Currently, the federal cap on cigar tax is nearly 5 cents, but it could well go as high as $10 dollars a stogie if the bill clears its next hurdle in the Senate Finance Committee this week. The increased proposal would use the increase to fund an expansion of the Children's Health Insurance Program.

Committee figures calculate the average tax on a premium cigar would be $1, while mass-marketed cigars would be about 16 cents.

Rep. Eric Cantor, R-Va., told the Richmond Times-Dispatch he's against the bill.

Cantor said he is "absolutely opposed to raising taxes to pay for the huge expansion of the . . . program." Cantor cited that an increase in the tobacco tax may hurt job creation in his district, which includes the headquarters of Philip Morris, a major cigarette maker, also, unsurprisingly, opposed to a tax boost on cigarettes.

It's no surprise that the American Lung Association stands in support of the bill for cigar and cigarette tax.

The group's national advocacy director Erika Sward said, "We think it'll be a win-win for public health all around."

Sward predicts the end result of the tax will be fewer youngsters who can afford to smoke and more adults with a financial incentive to quit. "Historically, we know that the data around cigarette taxes, and the cigar tax, federally, have been undertaxed," she said. "To put a cap on the tax makes the proposal quite reasonable."

Lew Rothman, CEO of J.R. Cigar, said the cigar industry and the stores it supports will not survive this tax.