Tax upsets makers
WILSHIRE BLVD Smoke ‘em if you’ve got ‘em because if Congress has its way, it will cost a small fortune to purchase your favorite cigar.
Under a proposal to expand the Children’s Health Insurance Program, federal lawmakers are contemplating raising the tax on most stogies by as much as $10, and that’s just the hit importers and manufacturers will take. Retailers are expecting prices to jump by as much as $30 or $40 dollars for high quality cigars as they pass on the cost to consumers.
If that happens, the owners of The Tinder Box, a popular cigar shop on the east end of town say they may be forced to shut down.
“This could definitely put us out of business,” said Jeanette Kolpin, owner of The Tinder Box, a fixture in the community since 1928 when her father in law Ed Kolpin, who died in April, left his father’s pharmacy business to strike out on his own. “We had a salesman come in here the other day that was telling us that it was amazing how many stores have already went bankrupt. Hopefully we can survive because we have a great group of employees here, but it they raise the taxes so high, I don’t think we can survive.”
Cigar retailers understand the need for child healthcare, but what they can’t understand is why cigars, which make up a only a fraction of all tobacco sales (in 2006, nearly 400 billion cigarettes were sold in the U.S. compared to 5.3 billion cigars), are being taxed so heavily. Currently the federal tax on cigars is a nickel, far from the proposed $10 increase.
“They are painting us with the same brush as cigarettes and that’s not right,” said Charlie Templeton, a spokesman for the International Premium Cigar and Pipe Retailers Association, which is involved in a nationwide campaign to inform consumers about the proposed tax hike. “If you want to have an impact on children’s health, let’s go after snack foods or sugared soft drinks. If you really want to do something for the country, tax them.”
Many casual smokers are well heeled enough to drop $10 for a premium puff, but would they pay $15 to $20 for the same pleasure?
Lucas Capra, general manager of the Lone Wolf premium cigar shop in downtown, doesn’t think so.
“It would be crippling to the industry,” Capra said as he punched in numbers on a small calculator to demonstrate how the extra cost would be passed on from the manufacturers to the distributors, retailers and finally, the smokers. “I think this is really draconian. It’s not even handed. It’s really just punitive and has the potential to be very damaging.”
Capra fears that the tax increase would fuel activity on the black market, just as prohibition did in the 1920s.
“There is a huge black market for tobacco,” Capra said as he pulled out a packet if cigarettes to display the state and federal tax stamps, which can cost as much as 20 cents per pack. “This will make the black market more profitable. I have people almost every day trying to sell me cigarettes from Canada or somewhere else that just happened to fall off the back of a truck …It’s really unfortunate.”
Money generated from the tax would fund payments to states to help buy medical coverage for kids not poor enough for Medicaid. While the proposed tax on cigars is drawing the most attention, the proposal, which would generate an extra $35 to $50 billion a year, mainly focuses on cigarettes. If approved, federal taxes on a pack would jump from 39 cents to $1.
Approval may be difficult as President Bush has vowed to veto the bill, not over the cigar provision, but over objections expanding federally finances health care for the non-indigent.
Smokers said no matter what the cost, they will most likely continue to indulge, some because they are addicted while others feel puffing on a quality cigar while drinking a dry Cognac is the key to relaxation.
At Santa Monica Tobacco, owner Ali Attar said he was concerned about the tax and its effect on his business, but in the end he believes customers will keep coming back no matter the price.
“Every time they raise the tax, people will stay away for the first few months,” Attar said. “But they always come back… Instead of trying to raise taxes to pay for healthcare, the government should reconsider all the money they are spending on the war in Iraq. We are already paying our fair share.”
Originally published in the Santa Monica Daily Press print edition on September 8, 2007. Read the original PDF.