The Cigar Tax: Up In Smoke

The proposed $10 cigar tax will wreck the cigar industry.

It once was said that “what this nation needs is a good 5 cent cigar.” The 5 cent cigar has gone the way of the dodo bird, of course, but nothing could have prepared cigar lovers for the fact that Congress is now planning to raise cigar taxes to as high as $10 per cigar. The proposed tax increase has outraged cigar smokers. Non-cigar smokers should be alarmed as well.

The proposed tax will supposedly go to funding health care programs but recent history should cause us to beware of such claims. Remember the big tobacco settlement that came about in the late 1990s? The funds from the settlement were supposed to go to healthcare, but as this article notes, much of it went instead to highway repairs and school construction. Who really thinks that the allocation of funds from a $10 cigar tax will be any different? Who really believes that instead of having the funds diverted for health care, we will see instead that they are used to fund yet another Bridge to Nowhere, or yet another project that doesn’t exist, or even another monument in West Virginia to its senior Senator?

Because, you know, it’s been a while since Robert Byrd has had something named after him.

Another justification offered in favor of the cigar tax is that the higher it is the less likely people are to take up smoking. But as Jonah Goldberg notes, the only thing the cigar tax is going to accomplish is to prevent poor people from smoking. Rich cigar lovers will still get their stogie fixes anytime they want because they will be able to pay the exorbitant tax. It is only poor people who will be deterred from buying and smoking cigars and many of them will resent the coercion.

Not only will poor people not purchase cigars, but rich people will — whenever they can — opt to purchase their cigars in bulk from foreign countries like Mexico and Canada whenever they can. They can do so either by visiting those countries or by purchasing cigars over the Internet. Even if they have to pay a duty in bringing these cigars back, they will gladly do so since that duty will be far less than the $10 per cigar tax that they would otherwise have to pay.

And we haven’t even talked about the fact that a $10 tax on cigars will help punch more holes in the embargo against Cuba. After all, if rich people are going to go to nearby countries in order to get their cigars whenever it is convenient for them to do so, and since those countries have supplies of Cuban cigars, their American customers will not only have an incentive to get cigars from those countries in order to avoid the $10 tax per cigar that is imposed in the United States, they will also have an incentive to get Cuban cigars while they are at it. Maybe the people advocating the $10 per cigar tax also believe that the Cuban embargo doesn’t work. If so, they can make that claim separately. They don’t need to surreptitiously undermine the embargo via a misguided tax scheme.

Of course, even if the proponents of the $10 tax are sincere in their desire to bring additional revenue into government coffers and even if they really want that revenue to be used in order to fund health care programs, raising the tax to $10 per cigar is precisely the wrong way to go about it. The proposed $10 tax will help wreck the cigar industry and its impact will be especially painful in communities where the cigar industry makes up much of the local economy. As the cigar industry is decimated, the government’s ability to bring in additional revenue will suffer. The more the government seeks to cripple the cigar industry with this exorbitant tax, the more it will hamper sales and the less revenue it will be able to bring in.

This bill doesn’t have much of a chance of becoming law, as President Bush has stated that he will veto it. And that’s a good thing. The $10 cigar tax will only lead to more exorbitant spending, it will have a disproportionate impact on the poor, it will hamper the embargo on Cuba and it will ultimately fail to bring in revenue for the government since the tax will cripple the cigar industry. This tax idea deserves to go up in smoke. And you don’t have to be a cigar fan to cheer its demise.