$96 Billion Tobacco Tax Hike Removed from Build Back Better Act Draft

The most recent version of the $1.75 trillion reconciliation bill, known as the Build Back Better Act, does not include an increase on taxes for cigars or other tobacco products. In fact, the current version does not include the words “cigar” or even “tobacco.”

A version of H.R. 5376 released today by the House of Representatives Committee on Budget removed a previously included tax hike that would have dramatically increased the taxes on cigars, cigarettes, e-cigarettes and other tobacco products. Previous estimates indicated the tax hike could have produced as much as $96 billion in new taxes over the course of a decade.

Democratic leadership is still working on the Build Back Better Act, meaning there is still a chance that the tobacco tax hikes could return to a future version of the proposal, but in recent weeks the Democrats have worked to reduce the scope of both the spending and taxes included in the bill as moderate Democrats—particularly in the U.S. Senate—have objected to various aspects of the bill.

---

This would mean yet another defeat for Sen. Dick Durbin, D-Ill., who has proposed these tobacco tax increases in a variety of previous bills including the Tobacco Tax Equity Act or the Mothers and Offspring Mortality & Morbidity Awareness (MOMMA) Act. So far, none of these bills have passed.

The language proposed in previous versions included:

• Doubling the taxes on cigarettes, both small and large;
• Doubling the tax on small cigars;
• Doubling the tax on roll-your-own tobacco;
• A more than 16x increase on pipe tobacco;
• New taxes for e-cigarettes;
• A massive tax hike for premium cigars

For large cigars, it would have changed the current tax rate, which is 52.75 percent of the import price of a cigar, capped at 40.26 cents per cigar. If included, the language would increase that tax to $49.56 per pound, no less than 10.066 cents per cigar.

Because the tax is based on weight, the increases would be more dramatic for larger cigars. halfwheel weighed three sizes of cigars and estimated the tax:

Cigar	Weight	Current Federal Tax	MSRP	Proposed Federal Tax	Proposed MSRP	Tax Change	MSRP Change
Robusto (5 x 50)	15g	$0.4026	$9.50	$1.66	$12.01	312.32 percent	26.47 percent
Toro (6 x 50)	16g	$0.4026	$10.25	$1.78	$13	342.13 percent	26.88 percent
7 x 70	28g	$0.4026	$12.5	$3.1	$17.89	670 percent	43.16 percent

All of those cigars are currently taxed, at a maximum, of 40.26 cents per cigar.

Those taxes would be the price paid by the manufacturers. In the status quo, the excise tax is built into the wholesale cost of the cigar and retailers then mark it up, usually doubling their wholesale cost. In states with added taxes, the impact of the taxes would get worse as the state tax is based on the wholesale price paid by the retailer, meaning that a federal tax increase would increase the basis upon which the state tax is paid.

For example, if a robusto cigar has a current MSRP of $9.50 per cigar, the federal excise tax paid is likely 40.26 cents per cigar. In a state like Florida—with no state cigar tax—the price before sales tax is likely $9.50. If the new taxes were enacted, that would likely increase to $12.01 per halfwheel estimates.

In a state like Nebraska—which has a 20 percent tax on the wholesale cost of cigars—currently, that same cigar likely costs around $11.40 before sales tax. If enacted, halfwheel estimates that it would increase to $14.42. The increases would be more dramatic in states with higher wholesale taxes and/or on larger cigars.

The weights of the cigars vary greatly. Not only are certain cigars of the same dimensions filled with more tobaccos, but the tobacco themselves might be denser. Furthermore, much of the weight of a cigar is based on the moisture inside of the tobacco, which can be affected by both the humidity the cigar was stored at and also the ability of the tobaccos to retain moisture.

For example, one manufacturer told halfwheel that it weighed two different brands of 6 x 52 toros it sells and found the cigars weighed 13.71 grams and 16.16 grams.