Massive Tobacco Tax Increase Bill Reintroduced in Congress

The Tobacco Tax Equity Act bill is back.

Earlier this month, the CARE For Moms Act was introduced in Congress. That bill would increase healthcare for expecting and new mothers, while also exponentially increasing the taxes for cigars and other tobacco products. The tobacco tax language was copied and pasted out of the Tobacco Tax Equity Act, a bill that has been introduced in previous sessions of Congress but has failed to gain traction and has not been passed.

Now, the Tobacco Tax Equity Act is back as a standalone item.

Sen. Ron Wyden, D-Ore., and Sen. Dick Durbin, D-Ill., introduced the Tobacco Tax Equity Act of 2023 in the Senate, while Rep. Raja Krishnamoorthi, D-Ill., introduced the bill in the House of Representatives.

The tobacco tax-related language is copied and pasted from previous bills. It includes:

• 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;

For premium cigars, the language removes the existing federal excise tax of 52.75 percent, capped at 40.26 cents per cigar, and replaces it with a weight-based tax of $49.56 per pound.

Because it’s a weight-based tax, the difference between the existing tax and the new taxes would vary depending on how heavy the cigar is. For cigars robusto or larger, it would likely more than triple the current federal tax rate. halfwheel estimates that this new weight-based tax would equate to:

• Robusto (5 x 50) (average weight: 12.54 grams)
  • Currently: up to 40.26 per cigar
  • If Bill Passes: $1.37 per cigar
  • 240.29 percent increase
• Toro (6 x 52) (average weight: 16.47 grams)
  • Currently: up to 40.26 cents per cigar
  • If Bill Passes: $1.80 per cigar
  • 347.1 percent increase
• Gordo (6 x 60) (average weight: 22.05 grams)
  • Currently: up to 40.26 cents per cigar
  • If Bill Passes: $2.41 per cigar
  • 498.6 percent increase

The larger the cigar, the heavier it likely is, meaning that those cigars would pay more in taxes.

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, of which 80.5 cents might be directly due to the federal excise tax. If Tobacco Tax Equity Act was enacted, that would likely increase to $11.43 per halfwheel estimates and the direct impact of the federal tax would be $2.74.

In a state like Nebraska—which has a 20 percent tax on the wholesale cost of cigars—currently, that same cigar likely costs around $10.45 before sales tax. If the Tobacco Tax Equity Act was 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.

If passed, the tax hikes—which includes a floor tax—would take effect on Dec. 31, 2023.

“We have made historic progress over the years to reduce the suffering from tobacco use,” said Durbin in a press release. “Our most effective strategy to help reduce smoking and prevent a new generation from becoming addicted is to price these deadly products out of the reach of children. But federal tobacco taxes have not been updated in 14 years, and the most popular tobacco product with children—e-cigarettes—are not taxed at the federal level, despite 30 states utilizing this important public health tool. Our bill would help reduce tobacco and e-cigarette use by ending loopholes that the industry has exploited to target our children.”

Featured Image By Scrumshus (Own work) [Public domain], via Wikimedia Commons

Update — As noted below, an earlier version of this post incorrectly listed the cigar weights as ounces instead of grams.

Charlie Minato

I am an editor and co-founder of halfwheel.com/Rueda Media, LLC. I previously co-founded and published TheCigarFeed, one of the two predecessors of halfwheel. I have written about the cigar industry for more than a decade, covering everything from product launches to regulation to M&A. In addition, I handle a lot of the behind-the-scenes stuff here at halfwheel. I enjoy playing tennis, watching boxing, falling asleep to the Le Mans 24, wearing sweatshirts year-round and eating gyros. echte liebe.