The new major tax bill proposed by Democrats in the House of Representatives would dramatically increase the federal taxes on tobacco products, including more than doubling the federal taxes for large cigars.
The U.S. House of Representatives’ Ways and Means Committee is in the process of markup for the Build Back Better Act, or specifically, how to pay for the proposal, which is part of President Joe Biden’s domestic agenda. It could cost as much as $3.5 trillion and as such, Democrats on the House Ways and Means Committee have unveiled a proposed bill that would increase a variety of taxes.
Included in the proposal is as much as $96 billion in potential tax revenue through increased taxes on tobacco and nicotine products. Much of the language seems identical to the language proposed by Sen. Dick Durbin, D-Ill., in a variety of bills over various years using names like the Tobacco Tax Equity Act or the Mothers and Offspring Mortality & Morbidity Awareness (MOMMA) Act.
- 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 change the current language, which is 52.75 percent of the import price of a cigar, capped at 40.26 cents per cigar. If passed, the bill 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.
This is the third time language like this has been included in a bill proposed this year. While the other two were one-off pieces of legislation that seemed like to fail, the risk was always that the language would find its way into a larger package like this. The Build Back Better Act is seen as a key piece of the Biden administration, though it’s unclear whether the Democrats will be able to pass the bill without any Republican support.
The House Ways and Means Committee will hold markup on the bill tomorrow, which will give members the opportunity to debate and revise the draft of the regulations.