PCA Sends Letter to White House Objecting to Proposed $96 Billion Tobacco Tax Hikes

The Premium Cigar Association (PCA) has sent a letter to the White House objecting to the tobacco taxes included in the Build Back Better Act, a massive $3.5 trillion domestic proposal from President Joe Biden. The proposal currently includes as much as $96 billion in potential tax revenue which would more than double the federal taxes paid on most cigars.

In its letter, the PCA makes a variety of arguments against including the tobacco tax language in the act:

• The tax increase will affect lower-income earners;
• Increasing tobacco taxes is not a reliable form of revenue due to decreased sales;
• The taxes would threaten the stability of certain countries in the Caribbean and could lead to “large scale migration;”
• The tax increase will affect small businesses;
• The tax increase will affect state budgets due to decreased sales;
• The tax increase ignores the health data regarding premium cigars.

Much of the language in the proposed language drafted by the U.S. House of Representatives Ways and Means Committee 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.

This includes:

• 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.