As part of the President’s Budget for Fiscal Year 2017, a new program called Preschool for All has been proposed with funding coming from an increase in both the federal tax on cigarettes and a tax increase on other tobacco products, including cigars.
Currently the federal tax on cigarettes is $1.01 per pack, the proposed budget would see that increase to $1.95. In addition, other tobacco products, including cigars, would see their respective federal taxes increase to match how cigarettes are taxed.
For cigars, this would mean the tax rate would increase to 93.72 cents per cigar. Currently, cigars are taxed at 52.75 percent of the wholesale cost capped at 40.26 cents per cigar. This would increase to 102.2 percent of the wholesale price, capped at 93.72 cents per cigar according to information provided to halfwheel by the International Premium Cigar & Pipe Retailers Association (IPCPR).
There were 310 million large cigars imported to the U.S. in 2014, meaning it would generate $116.8 million in taxes annually. In addition, beginning in 2018 the taxes would increase 1.6 cents per year to adjust for inflation.
“The President’s proposal clearly demonstrates the disconnect between the White House and small business retailers throughout the country,” said Kip Talley, sr. director of federal affairs for IPCPR, to halfwheel. “Premium cigars are not marketed to or desired by America’s youth and should not be targeted for increased taxation. IPCPR is confident this misguided attempt at raising revenue will not be adopted by the U.S. Congress.”
While the tax increase on cigars is almost double, it’s nothing compared to other products. Pipe tobacco would increase from $2.83 per pound to $44.23, over a 1,000 percent increase, and smokeless tobacco would increase over eight times its current rate. The reason is the White House wants to see the products taxed at an equivalent rate of cigarettes.
In addition, there would be a one-time floor tax on Jan. 1, 2017, although cigars would not be applied. Retailers would be required to pay the difference in tax from what they paid to the new rate for any product still in inventory on Jan. 1, 2017. Pipe tobacco and roll-your-own tobacco, which many tobacconists carry, would be subject to the floor tax.
The good news for cigar smokers is that President Obama’s budget is essentially dead on arrival. Republican leadership in both houses of congresses has indicated they don’t intend to hold hearings on the proposal.