Another U.S. Senate Bill Seeks Massive Federal Tax Increase on Cigars, Other Tobacco Products

Another bill seeking to “close loopholes” in the federal tax code on tobacco products has been introduced into the U.S. Senate, and if passed, could increase the federal taxes paid on some premium cigars by more than 800 percent.

S.1314, known as The Tobacco Tax Equity Act Of 2021, is being sponsored by Sens. Dick Durbin, D-Ill. and Ron Wyden, D-Ore., along with Representative Raja Krishnamoorthi, D-Ill. and seven other Senate Democrats. It comes on the heels of Durbin’s MOMMA’s Act, which was introduced in March as a way to reduce the deaths of American mothers during and after childbirth by using the additional tax revenue to fund research and the establishment of best practices, as well increasing the length of postpartum Medicaid coverage from two months to one year.

Like previous versions of the bill, Durbin, a longtime critic of tobacco, is seeking the following changes:

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

In the case of premium cigars, it would change the current tax language from 52.75 percent of the import price of a cigar with a cap of 40.26 cents per cigar, to a weight-based system of $49.56 per pound and no less than 10.066 cents per cigar.

With the change, the tax would be most impactful to bigger cigars, as shown in estimates created by halfwheel after weighing three sizes of cigars and estimating the tax:

• Robusto (5 x 50, 15g) — $1.66
• Toro (6 x 50, 16g) — $1.78
• 7 x 70 (28g) — $3.10

Those taxes would be the price paid by the importers, which would then be built into the wholesale cost of the cigar. Retailers would then mark it up, usually doubling their wholesale cost.

But where the tax would be most felt is in states with additional and uncapped tobacco taxes, as those are based on the wholesale price paid by the retailer. That federal tax increase would then 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 maximum federal excise tax paid is 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 either of the Durbin-sponsored bills were to be enacted, that would likely increase to $12.01 per halfwheel estimates.

However, in a state like Nebraska—which has a 20 percent tax on the wholesale cost of cigars with no cap—that same cigar with an MSRP of $9.50 likely costs around $11.40 before sales tax. Should the tax rate be changed to that in Durbin’s plan, 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.

“Data shows that the most effective strategy to prevent children from starting this deadly habit is to price it out of their range,” said Durbin in a press release. “This bill would help reduce tobacco and e-cigarette use by ending loopholes that the industry has exploited to target our children. If America can kick its nicotine addiction it would go a long way to improving our public health for generations to come.”

The bill has been referred to the Senate Committee on Finance where it awaits further action. That committee has also been assigned the MOMMA’s Act, which it has not taken any action on since receiving it in late February. Previous versions of the bills have failed to get any committee votes.

Featured image by Scrumshus, Public domain, via Wikimedia Commons