What Trump’s Budget Means for Cigars

In short, not much.

President Donald Trump’s budget proposal includes substantial cuts to the Children’s Health Insurance Program (CHIP), formerly known as SCHIP, and the U.S. Food & Drug Administration’s overall budget, but even if the budget proposal were to pass—a near impossibility—there’s nothing in it that suggests a reduction in the amount of taxes and fees the federal government places on cigars.

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The budget would cut $5.8 billion from the CHIP program in the next decade, but it doesn’t appear to include any cuts to the tobacco excise taxes that help to fund the CHIP program, which is funded by both the federal and state governments. While $5.8 billion is substantial, the CHIP program has a budget over $15 billion for this year alone.

CHIP provides healthcare to children of low-income families. Originally passed in 1997, much of the federal funding for the program comes from the federal taxes on tobacco products. In 2009, the program was expanded and paid for by an increase in tobacco taxes, part of which included raising the federal excise tax on cigars from 4.9 cents to 40.26 cents per cigar.[ref]The tax was originally 20.719 percent, capped at 4.9 cents, which was later raised to 52.75 percent and capped at 40.26. Most premium/large cigars are subject to the 40.26 cent cap, though some smaller and cheaper cigars pay less than the 40.26 cents because of their lower price.[/ref]

Trump’s budget appears to cut $5.8 billion from CHIP by eliminating a piece of the Affordable Care Act (ACA), also known as Obamacare, that provides federal funding for CHIP for families with incomes 2.5 times that of the federal poverty line. For those living in all states other than Alaska and Hawaii, the 2017 poverty guideline is $24,600 for a family of four, meaning a household making more than $61,500 would no longer be eligible under Trump’s plan.

The proposed budget shows a slight reduction in federal tobacco excise tax collected, though that reduction is likely due to decreased tobacco consumption.

• 2016 (actual) — $14.103 billion
• 2017 (estimate) — $13.977 billion
• 2018 (estimate) — $13.851 billion

It should be noted, the 2017 estimate is based on projections from the Obama administration, not Trump’s, showing the reduction in tobacco excise taxes exist independent of Trump’s proposal.

Despite the cuts, Trump’s budget would extend CHIP through FY2019.

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Another concern for cigar smokers is FDA. There is a substantial reduction in funding for the U.S. Food & Drug Administration, though the agency’s Center for Tobacco Products is not a line item, so it’s unknown whether cuts are planned for CTP specifically.

Total FDA expenditures would be cut almost in half by Trump’s budget.

• 2016 (actual) — $4.711 billion
• 2017 (estimate) — $6.654 billion
• 2018 (estimate) — $2.647 billion

Almost every listed line item for FDA is cut by the proposed budget with substantial cuts to the agency’s Human Drugs budget ($312 million cut) and reimbursable user fees ($1.151 billion in cuts.)

That being said, the budget specifically mentions tobacco user fees, staying that “$672,000,000 shall be derived from tobacco product user fees…and shall be credited to this account and remain available until expended.”

The $672 million number is the amount of tobacco user fees set for FY2018. Tobacco user fees are paid for by six different categories whose manufacturers pay a percentage of the total number, i.e. $672 million, based on the amount of federal excise taxes they pay in comparison to the rest of the companies in the six categories. By halfwheel estimates, user fees for FY2017 should be around 4.32 cents per cigar, though some companies have reported slightly lower user fee bills since the agency began collecting them last year.

Up until the enactment of the deeming regulations last August, cigars and pipe tobacco companies were not subject to said user fees, which are paid in order to fund FDA’s CTP and the associated regulations, meaning the other four categories—cigarettes, snuff, chewing tobacco and roll-your-own—were required to pay additional monies to offset the lack of cigar and pipe tobacco user fees.

In short, even if cigars were no longer subject to FDA regulation, and therefore user fees, the total amount collected for FY2018 and FY2019—$672 million and $712 million respectively—would remain the same, it would just mean the other four categories, plus pipe tobacco, would once again be subject to a higher share.

E-cigarettes and vapor products were not included in the most recent user fee schedule and as such will not be required to contribute to the total amount until the user fees are renewed by Congress, which will need to take place for FY2020.

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Trump’s budget is a request, not a formal bill. It sheds light on the Trump administration’s thinking, but ultimately Congress controls the government’s purse strings.

“Almost every president’s budget proposal that I know of is basically dead on arrival,” said Sen. John Cornyn, R-Texas, just before it was introduced.

Republicans and Democrats will likely create their own budget proposals, though funding the government is done through spending and appropriations bills, drafts of which are expected sometime next month.

In recent years, even those specific budgets have failed to become law. Those bills oftentimes pass committees of one house of Congress, though few managed to make it through all of Congress. As such, funding has largely relied on a mixture of emergency short-term spending bills and omnibus bills.