Press Releases

Date: 9/1/2007

The Cigar Industry Urgently Needs Your Help!

The Cigar Industry Urgently Needs Your Help!

As many of you already know, the U.S. Senate passed a $35 billion expansion of State Children’s Health Insurance Plan (SCHIP H.R. 976). Tobacco taxes are the sole source of funding for the SCHIP program.

To fund such a large expansion of the SCHIP plan, the Federal tax on cigarettes will increase from $.39 per pack to $1.

The taxes on Other Tobacco Products (OTP Tax), which includes pipe tobacco, snuff, chewing tobacco, and roll-your-own cigarette tobacco will also double and in some case triple.

The large cigar tax will increase from the current rate of 21% of the wholesale price to a staggering 53%. The current tax cap of $.05 per cigar will increase to $3 PER CIGAR.

The Senate version of the SCHIP Bill also imposes a 53% “floor tax” on the inventory that a tobacconist has on hand January 1st, 2008.

Historically, the $.05 Federal tax on a cigar has been passed along to the consumer with little effect on the final price. However, with the cap increasing to $3 per cigar, you will see a huge increase in the price of you cigars. Get ready for a $100 box of Macanudos to go to $180. A box of box of Punch Rothschilds to go from $110 a box to $170. And this is a BEST CASE SCENARIO. Expect the prices of single stick purchases to go up much more. If you live in a state that also has a state cigar tax, you better hold on to your wallets because the price of your cigars may triple.

Now unless every one of you doesn’t mind paying 53% more for your cigars, the cigar industry is facing a total collapse. And if you don’t mind paying 53% more for your cigars, good luck finding a cigar store to buy your cigars . That’s because the proposed “floor tax” will wipe out almost ALL of the cigar shops in America…imagine Uncle Sam asking you to write a check for 53% of the value of what you own.

There are many other valid reasons why the proposed cigar tax is a bad idea. (I will list them for you later in this e-mail)

The current status of the SCHIP bill is that it is going to conference committee this month. What this means is that the Senate and House of Representatives will meet and try to negotiate a SCHIP bill that will satisfy the House, Senate and the President.

George Bush has threatened to veto the expansion of the SCHIP bill because it will cost taxpayers too much money. The expanded SCHIP bill covers families that earn up to $80,000 per year and it covers adults as well as children.

This is our final chance to let our Representatives know that the proposed 6,000% cigar tax increase is an outrage! The RTDA has an excellent website that will help you write a letter that opposes the cigar tax. It will automatically fax and e-mail the letter to President Bush, both of your Senators and your Congressman. The whole process takes about 2 minutes.

To send your letter to your Representative go to http://rtda.org/legislation.html

Just enter your zip code and the rest is as easy as pointing and clicking.

After you send your letters, pass this info on to anyone who will listen. If your local cigar shop isn’t having customers sign letters to their Representatives, ask them to do so. We need help all across America.

In addition, call your Representatives and let them know you oppose the cigar tax. The RTDA website can help you do this as well.

I cannot stress enough that if the large cigar tax goes through as it is currently written, the cigar industry will be doomed.

Below is a partial list of reasons the cigar tax is wrong:

· A $3 tax on the imported price of a cigar can multiply into a $12 to $18 price increase per cigar by the time the cigar reaches the final consumer.

· Contrary to popular belief, the overwhelming majority of cigar consumers are the middle class, not the super rich. The proposed cigar tax will simply make cigars unaffordable.

· The demand for premium cigars is price sensitive since cigar smoking is more of a hobby than a habit. Unlike cigarettes, cigar smokers can simply decide to stop buying cigars at any time.

· The proposed cigar tax will cause thousands of small "mom & pop" cigar shops in the U.S. to go out of business due to a decrease in sales and their inability to pay the Senate's proposed floor tax on cigars.

· The Senate's proposed floor tax would be all but impossible for the government audit and establish the value of a retailer's inventory. The floor tax would encourage cigar retailers to hide their inventory in their homes so they wouldn't have pay the floor tax.

· The tax will dramatically lower the demand for cigars, therefore not generating the income that Congress anticipates from the tax.

· Lower cigar demand will lead to layoffs and job losses at all levels of the cigar industry. This will lead to a greater dependence on government-supported social aid programs, negatively impacting the economy. Case-in-point—the luxury tax of the 1990’s. When the exorbitant luxury tax was enacted, an entire industry (the yacht industry) was decimated, leading to drastic job-losses in shipbuilding yards. These working class Americans were left without incomes to support their families.

· The negative economic and social impact of the cigar tax on developing countries that make cigars and grow cigar tobacco including the Dominican Republic, Honduras, Nicaragua, Mexico, the Bahamas, Ecuador, Columbia, Peru, Brazil, Panama, Costa Rica and Cameroon.

· The tax will negatively affect the United States international relationships with the above mentioned countries due to the hundreds of thousands of people who will loose their jobs because of the American government placing a huge tax on a product that these countries make. This will help fuel anti-American political movements instigated by radical Sandinistas in Nicaragua, Venezuela's Hugo Chavez and Cuba's Fidel Castro. (Cigars are one of the largest exports from Nicaragua and Honduras.)

· Nicaraguan, Honduran and Dominican cigar manufacturers are viewing the proposed cigar tax as a violation of the Central American Free Trade Agreement.

· The proposed cigar tax will add to America’s illegal immigration problem due to the huge number of people in Honduras, Nicaragua, Mexico and the Dominican Republic who will loose their jobs due to the proposed cigar tax.

· 95% of all tobacco excise tax revenues at the federal level come from mass-produced cigarettes. Of the remaining five (5) percent, barely one (1) percent of that tax revenue is generated by handmade cigars. This relatively small amount of income for the government will be more than offset with a negative economic, social and political impact caused by the cigar tax.

· The premium cigar industry is not a financial burden to America’s health care costs. A more appropriate industry to tax would be the soft drink, snack food and fast food industry since it is a main contributor to our Nation’s health problems. Plus the “junk food” industry could absorb a tax much easier than a cottage industry like cigars.

· The current tax cap of $.05 per cigar is in line with similar priced luxury items. Currently the Federal tax on a glass of wine is $.05, a bottle of beer is $.05 and 1oz. of whiskey is $.09

· Discuss an exemption for large cigars or a reasonable tax increase on large cigars that will not destroy the industry but will generate a reasonable amount of revenue for the government.

· Increase the tax cap on cigars by the same percentage that the cigarette tax was increased in the Senate version of SCHIP, which is 156%. If you apply this percentage increase to the current $.05 cap, it would increase the cap to approximately $.12 per cigar. With a reasonable cigar tax increase, the government would still be more than doubling the cigar tax, increasing the government’s revenues from cigars and while not killing an entire industry.

In Florida, we have been successful in getting our Representatives to respond to our concerns. In fact, last week Christian Eiroa of Camacho Cigars, Mike Chusano of Cusano Cigars and I met with U.S. Congressman Ric Keller in Orlando. Congressman Keller not only agrees that the proposed cigar tax is unfair, he went on the record to say:

"I strongly oppose any increase in the cigar tax- period! I didn't come to Congress to increase taxes. Putting a $10 tax on cigars will put "mom and pop" cigar shops out of business. I'll fight any tax increase, whether it is one penny or $10."

Way to go Congressman Ric Keller! Now lets get this message out to the other Representatives and urge them to repeal the cigar tax.

Jeff Borysiewicz
President & Founder
Corona Cigar Company

Contact phone numbers:

Washington office of President George W. Bush (202) 456-1414

Washington office of Senator Bill Nelson (202) 224-5274

Washington office of Senator Mel Martinez (202) 224-3041