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Cigar tax: A job killer Wednesday, Jul 25, 2007 By David Sanders FORT SMITH - Kevin Ray is weary as the U.S. Senate prepares to debate a proposal to reauthorize and expand the decade-old federal program that provides health insurance to certain children. His uneasiness stems from the negative impact the legislation could have on his business. "The taxes would tear me up," he said while standing behind the cash register of his small tobacco store. Ray is one of a handful of Arkansas merchants who sell premium cigars. What has him and others concerned is a huge tax increase on cigars unlike anything the industry has ever seen. The bill, which passed the Senate Finance Committee last week, would collect $35 billion in new government revenue by increasing the federal tax on cigarettes from 39 cents to $1 per pack, but for Ray and other tobacconists the 4.3 percent cigar tax would jump to 53.13 percent of the price of a single cigar. This is nothing more than a luxury tax on cigars. Supporters of the tax point out that the new tax would be capped at $10 per cigar, as if cigar aficionados are supposed to say "thank you." "The government knows they can go after us because there are so few people who smoke cigars," Ray complained. Eloise Ensminger, who owns Little Rock's Pipe and Tobacco Shop, said the proposed tax will have a detrimental effect on her customers who smoke cigars by pricing them out of a market that is already taxed by both federal and state governments. "It would be a devastating blow to the consumer who enjoys a fine cigar. It would also be a devastating blow to the brick and mortar tobacco shops," she said, adding that many consumers would look elsewhere, like the Internet, to buy their cigars. Ray believes something more sinister could happen. He claims the black market, which supplies many Americans with illegal Cuban-made cigars, would be expanded to include the non-Cuban varieties he currently sells. Both Ray and Ensminger say their customers aren't rich. "My customers will buy a few cigars at a time and may spend around $6 a cigar," Ray said. But, with the new tax his customers would be forced to pay $10 for that same cigar, which he believes many people just would not pay. He said he has very few customers who would be considered a stereotypical rich, fat-cat cigar smoker. Ensminger said that 90 percent of her store's business is derived from customers who buy single cigars, as opposed to buying a box of 25 at a time. Many retailers fear that the new tax could put them out of business. "For us we are talking about a business that provides good jobs with benefits," Ensminger said. She provides full medical benefits not only to her employees, but to her employees' spouses and children. Those who work for her make too much money to qualify for state assistance. Sen. Blanche Lincoln doesn't view the tax as unreasonable or one that singles out Ray or Ensminger. Arkansas' senior senator is an ardent supporter of the children's insurance program and the new taxes. "Funding children's health insurance is one of the most important investments we as a nation can make - not only for the lifelong health of our children, but also for the future of our country. This is not singling out one portion of the tobacco industry. "The tax increase on large cigars is proportionate with the tax increase on other tobacco products including cigarettes, cigarette papers, chewing tobacco, and pipe tobacco," Lincoln said in a statement provided by her office. For Ray, Lincoln's words are empty. "She doesn't understand my business or the impact her actions might have on my business." ------- David Sanders writes twice weekly for the Arkansas News Bureau in Little Rock and is a host of the Arkansas Education Television Network's "Unconventional Wisdom." His e-mail address is DavidJSanders@aol.com. |
