Schip – more taxes

Recent news is cigarette FET (Federal Excise Tax) is rumored to increase by a dollar – not just go to a dollar!

This will make FET $13.95 a carton – surely a bit steep; given you still need to add state taxes, tobacco buyout, MSA payments (or escrow)  and in some cases city taxes. And you thought that in 1776 taxes were a thing of the past? Oh yeah, and another thing – there’s no cost for manufacture in there yet!

This taxation level will inevitably increase contraband and citizens everywhere will attempt to avoid these aggressive tax rates.

Is this the right solution? Comments please

47 comments ↓

#1 jancascade on 12.27.08 at 10:57 PM

That increase will certainly benefit the blackmarket. Will it take a Prohibition style crime wave to end this insanity?

#2 Smoker Gal on 12.28.08 at 8:00 PM

I’d say that blackmarket which is already out of control will reach even higher levels in the very near future!

#3 Bill Godshall on 01.06.09 at 4:31 PM

I’ve also heard rumors within the tobacco industry, but not within the public health community or in any news stories, that the SCHIP legislation’s cigarette tax hike may be $1/pack, not just $.69/pack.

If anyone has seen any news stories confirming this rumor, please post.

I strongly support a huge federal cigarette excise tax increase (at least up to a $3/pack federal tax) because it would hold cigarette smokers fiscally accountable for government healthcare services caused by smoking, would sharply reduce cigarette consumption (especially among youth), would encourage many smokers to switch to (or substitute) far less hazardous and less expensive smokefree tobacco products (presuming that the federal tax on smokefree tobacco products is increased at the same rate as the tax on cigarettes, which was how last year’s SCHIP legislation was structured).

The FET on tobacco is an excellent tobacco harm reduction taxation model that should be replicated by state tobacco excise taxes. Unfortunately, some states impose a higher tax rate for smokeless tobacco products than for cigarettes.

#4 The OTP Kid on 01.06.09 at 6:45 PM

I believe we should all embrace Bill’s model of behavior reform through high taxation. We could then have the illegal marijuana market and the illegal cigarette market all rolled into one. Sounds like an ingenius idea Bill!

#5 jancascade on 01.07.09 at 12:43 AM

The state and federal government will feel the effects of SCHIP before it is even presented to Congress. There will be very little tobacco moving in the country. The taxes have been paid on what is here, manufacturer’s, distributors and retailers are all reducing their inventories to manage the impact of a possible floor tax on their on hand inventories.

Consumers are stocking up and seeking new less than legal means of obtaining the tobacco products they want at a price they are willing to pay.

Prohibition did not work, nor will this tobacco prohibition via taxation. In the end it is government that loses, and small business owners too.

#6 BIG MO on 01.09.09 at 6:57 PM

The following is an email I received today with the position of Philip Morris on the legislation.

TAKE ACTION – SAY “NO” TO UNFAIR FEDERAL TAX INCREASES ON TOBACCO PRODUCTS!
Once again Congress is talking about raising federal cigarette taxes. Last year Congress tried for a $6.10 a carton increase to fund a multi-billion dollar expansion of the SCHIP Health Program. This year it could be more!

Your action is needed today!

Philip Morris USA (PM USA) believes that a federal excise tax increase would have a negative impact on the entire tobacco industry including wholesalers and retailers who sell tobacco products. PM USA is opposed to this increase and believes that this tax will promote purchases through untaxed or lower-tax venues, create incentives for contraband tobacco trafficking and harm legitimate businesses including retailers and wholesalers.

We strongly encourage you to express your opposition to your federal elected officials.

Please take moment to Take Action by visiting
http://www.stoptheFETincrease.com
to send an e-mail to your legislators or by calling (866) 527-4494 to get patched directly to your legislator’s office.

Thank you for your support! Making your voice heard in Washington can make a difference!

#7 Sally Ann on 01.10.09 at 10:52 AM

Can some one explain to me what the SCHIP bill is all about?

#8 jancascade on 01.10.09 at 9:05 PM

Sally Ann,
The government after messing up the cost of insurance by allowing the states territorial control of the insurance products offered in each state, that is allowing each state to mandate what an insurance company must cover now must find a means of financing insurace for the uninsured.

I live in Oregon where the legislature mandates something new to be covered every session. Last session is was birth control pills and metal health and addiction parity. If you are a drug addict, or an alcoholic, insurance here must cover treatment. Any and everything that can be tied to metal illness is now covered. The only addiction treatment excluded was tobacco addiction. Pretty funny, huh? The one thing the government and health care folks claim they are trying to end, also the cheapest and easiest to treat is excluded. That’s really rich!

Anyway, the states receive money to provide health insurance to cover low income kids and low income people. Only they don’t really buy insurance on the private market, they fund so called health care providers, sort of a self insured rip off. These selected providers negotiate with clinics to see their clients. The doctors/clinics get paid a set amount to be the provider, whether the so called insured ever crosses the threshold of the paid provider or not. There are layers and layers of administration, first at the state level, them the so called providers and finally, the clinics.

The states and their phony systems have taken money out of the insurance system, so those remaining must pay higher premiums. A child’s full insurance policy cost around $1,200.00 per year. They are the least costly to insure. If the states purchased insurance directly from the free-market, the risk and the cost would be reduced for all insured.

Don’t swear at the insurance company when your premiums go up, swear at the government. Good intentions gone bad again.

#9 HARLEYRIDER1978 on 01.11.09 at 6:50 PM

You already know the answer to this,look to canada and whats going on there.Diference is americans will do whatever to escape prohibition tactics by the govmnt.
If this passes or is even a higher tax say 2-3 bucks the end of legal cigs is guaranteed and you can get ready for AL CAPONES return.

#10 jancascade on 01.11.09 at 7:00 PM

There is already a hue and cry over the e-cigarettes people are using in bars since the smoking ban. There was an editorial in the newspaper calling for them to be banned. If people use these in bars, they are breaking no laws and are not paying tobacco taxes because they contain no tobacco.

The states may see a huge drop in their cigarette excise taxes, reduced cigarette sales and reduced MSA payments. It is what they wanted, now lets see if they can live with it.

#11 ... on 01.12.09 at 7:50 AM

There are some customers worrying that the 111th Congress will be attempting to push HR3963 EH through as soon as Obama gets inaugurated.

HR3963 was the Bill that Bush Vetoed. . . .

The following Federal tax increases were supplied by a reliable source. . . . this is why tobacco friends should be afraid of the bill passing, if revisited.

Cigarettes From: 39¢/pack → To: $1/pack or $1.39/pack
Little Cigars From: 3.656¢/pack → To: $1/pack
Large Cigars From: 20.719% → To: 52.988%
Large Cigar Cap: From: $48.75/1000p → To: $3,000/1000p
Moist Snuff From 58.5¢/lb. To: → To: $1.50/lb.
Chewing Tob. From: 19.5¢/lb. → To: 50¢/lb.
Pipe Tobacco From: 109.69¢/lb. → To: 281.26¢/lb.
RYO Tobacco From: 109.69¢/lb. → To: 888.89¢/lb.
Cigarette Papers From: 0.0122 cents/50 papers → To: 0.0313 cents/50 papers
Cigarette Tubes From: 0.0244 cents/50 tubes →To: 0.0626 cents/50 tubes

#12 The OTP Kid on 01.13.09 at 6:23 PM

Hopefully once SCHIP passes, the Indians will sell 100% of all the cigarettes in America and the money-grubbing feds won’t get a penny of tax revenue out them ever again.

#13 jancascade on 01.14.09 at 1:35 AM

SCHIP will make it very profitable to hijack the delivery trucks and break into shops. We will have more hijacked trucks, break-ins at distributor or retail shops. I just hope no one gets killed over a damn carton of cigarettes.

The Native Americans will cut deals with the states or the states will make it impossible for them to get product.

#14 Bill Godshall on 01.14.09 at 12:01 PM

Looks like the FET increases in this year’s SCHIP legislation are the same as last year’s, and will go into effect on April Fools Day for all tobacco products, except small cigars (whose $.96/pack FET increase from $.04/pack to $1/pack will be phased in over the next six years).

http://www.stogieguys.com/wp-content/uploads/SCHIP-Taxes.pdf

#15 jancascade on 01.14.09 at 3:16 PM

You re right Bill, I do believe the Congress will finanally kill the goose that laid the golden egg. The program is not sustainable and they will be back for more tax increases later, but will have to expand the taxes to other consumer products. We have joked about the Twinkie tax for years, but it is coming soon too to pay for this fiasco.

The states will lose millions as retailers reduce inventories on hand and replace less and less. I know I pay thousands of dollars to my state that will be greatly reduced for the first quarter of 2009. We will sell down and not replace many of the RYO and even cigarettes that do not turn as fast as others. The federal government will have to give the states the wndfall floor taxes they collect to sustain current state health plans.

A tax increase of this magnitude will have devasting effects that government and anti tobacco cannot seem to grasp. Oh well.

#16 farsight on 01.14.09 at 3:38 PM

I think its unfair to force smokers alone to put the tap for this program rather than have everybody who cares about children health share the cost.

Most smokers a low income and this added tax will be an extra burden on them.

I agree with the previous comments that illegal tobacco sale will flourish and tax revenue form tobacco sales may decrease.

One last thought! with the big spenders in congress I hope children health programs see the bulk of this money.

#17 Bill Godshall on 01.14.09 at 5:01 PM

The U.S. House of Representatives just voted, 289-139, to approve the bill to increase federal tobacco taxes, including a $61/pack cigarette tax increase, to fund reauthorization and expansion of the State Children’s Health Insurance Program (SCHIP).

With this change, the FET cigarette tax rate (as a % of retail price) will be about 20%, which is quite modest compared to the 43% rate in 1954.

#18 jancascade on 01.14.09 at 7:09 PM

The SCHIP legislation will be the end of government fundng of anti tobacco groups. When the states see their revenue decline, they will raid whatever is left in the MSA trust funds for anti tobacco like they did in Ohio and now in Florida. No way should a special interest agenda be funded with public funds.

It is going to be a blood bath and the states will remain standing.

#19 HARLEYRIDER1978 on 01.14.09 at 9:57 PM

you do realise that the states will be responsible for their advanced payments of the msa that wall street gave them….millions of people have tobacco bonds thru the states in their portfolios and if the taxes get to high and bootleg takes control the tobacco companies cant pay and the states are stuck paying the billions themselves so guess what high taxes will actually do to the states especially in this economic depression…..smokers will be the saviors of the economy in the end…..and if this keeps up the biggest job provider may well be your local ciggy bootlegger.

#20 HARLEYRIDER1978 on 01.14.09 at 9:59 PM

you can well bet and bank on..these liberal progressives behind the anti-tobacco legislation and taxes wont be running congress in 2 years.

#21 jancascade on 01.15.09 at 6:49 PM

I had not thought of the MSA payments. Our state will being paying on bonds until 2014. If this plays out the way I think it will, then the states will be making the bond payments out of their General Funds, thus further eating into available cash for health care and many other programs.

#22 RENEGADE on 01.18.09 at 7:05 PM

I have to believe that some of those voting on this matter just do not understand all the ramifications of taxing a product out of existence. How will budgets be met? The liberal agenda just seems to not consider the economics of what they are doing long term. I’m not saying folks should smoke because I think they are of greater potential to health related issues. But if we are vasing a program on these failed economics it will only lead to further financial issues.

#23 NYsmoker on 01.18.09 at 7:54 PM

And also more people will grow there own. That is what I will be doing loose tobacco at $24.60LB. The goverment has broken the cash cow.

#24 jancascade on 01.18.09 at 8:45 PM

When the MSA was signed 10 years ago, the big cigarette companies increased their prices to pay for it and laughed all the way to the bank. The states have continued to increase taxes and increase taxes. Smoker’s had no alternative that was acceptable to them but to pay it if they wanted to continue to smoke, or found they could not quit. Smoking bans have been enacted in almost every state.

SCHIP is turning them to the e-cigarette (all over the Internet) to cut down or stop smoking altogether. To use when they are out for an evening and can’t smoke in a pub.

The policians are going to be sadly disappointed with this legislation when it blows another hole in the state and federal budgets. Smokers will have the last laugh this time.

#25 Player210 on 01.19.09 at 9:41 PM

I think what fed’s need to do is put 5 cents tax roll of toilet paper and fund childern health care with that money. That way every one in this country will pay for it not just the smokers.

#26 jancascade on 01.20.09 at 1:50 AM

Today the Senate Finance Committee decided to add dental care for free too. This program is not sustainable and that nickel a roll on toilet paper may come to pass too. The tobacco industry will not be enough to fund it so they will have to seek other revenue sources.

SCHIP is going to be a financial boondogle the likes of which this country has never seen.

#27 joy on 01.20.09 at 7:01 PM

I am just amazed at how fiscally stupid our government is as it just does not make any sense.

#28 Sooner from Okie on 01.21.09 at 1:37 AM

I find the dialoque very interesting as it relates to an issue that is very dear to many folks but it amazes me that the public is kept in the dark about an issue like this that seems to present some very severe and long term damaging affect to the well being of this country. There are some very strange things that have taken place in the political sector that just seem to be over looked in the name of “change”. Yes it’s quite its very obvious that there is a need for some change but giving those who choose to do nothing a lot of benefits is not a very good economic thesis. Think about the fact that the majority of folks who win the lottery return to the state they were in prior to winning the lottery. My wise father use to say unless you work for it has little value!

#29 Bill Godshall on 01.21.09 at 12:18 PM

In fact, federal tobacco tax rates have declined significantly over the years and decades, and Congress has been considering increasing them for more than a decade (e.g. Clinton’s 1993/94 healthcare proposal included a $1.50/pack cig tax hike). Last session, the SCHIP legislation was approved twice by the House and by the Senate. So nobody should be surprised.

#30 Extreme Eddie on 01.21.09 at 4:15 PM

Mr. Bill what did a pack of cigarettes cost a consumer in 1994? Some how it’s very obvious that you just miss the point. Funding something that one may consider critical on a very unstable product in the future is clearly not a good deal. Industry research would predict a 6-7% decrease in volume would occur the first year! Why not tax a product that everyone uses that would fund the health care project.

#31 Player210 on 01.21.09 at 4:42 PM

And That Product is<>

#32 ???? on 01.26.09 at 8:02 AM

Why not have a standarized sales tax on items: Made entirely in the US – 1 rate, Made outside the US with US manufactured parts/fabric, etc. would be a higher. Then there would be no bickering of what industry to ruin or not ruin. There would be no question as what tax rate an item would fall. Would make reporting to the states, and the feds easier, and who knows what else we could accomplish.

Jsut some thoughts.

#33 Bill Godshall on 01.26.09 at 1:31 PM

Regarding FET cigar tax rates (and changes proposed to them in the SCHIP legislation), are “little cigars” only those sold 20 per pack (with all other cigars considered “large cigars”)?

Or are other small cigars (e.g. cigarillos) that come in packages with fewer that 20 also considered “little cigars” for federal excise tax purposes?

#34 John Rolfe on 01.29.09 at 10:19 AM

Bill,

The tax test is whether the cigars weigh more than 3 pounds per 1,000 so cigarillos, even though they are real tobacco wrapped (e.g, Davidoff and Wintermann’s style) and not wrapped in reconstituted sheet tobacco like most little cigars are would be impacted based on their weight since how they are actually wrapped does not define their tax basis. The pack configuration is also irrelevant. Taxed at the same rates as cigarettes after 6 years, little cigars will pay 5 cents in FET apiece regardless of the pack size. Now, what is interesting here given that the ad valorem large cigar tax is going to 52.4% of the manufacturer’s price, small cigars weighing over 3,000 pounds per thousand (cigarillos) will become more competitive and would be the same tax as little cigars assuming manufacturer prices of 11 cents per cigar (below current).

#35 TAZ on 01.30.09 at 10:22 AM

SENATE APPROVES SCHIP BILL, EFFECTIVELY RAISING TOBACCO TAX RATES
—————————————————————–
WASHINGTON — The U.S. Senate voted 66-32 late yesterday to add
$31.5 billion over 4-1/2 years to the State Children’s Health Insurance Program, or SCHIP, expanding coverage to more than 11 million children from 7.4 million last year. The House passed a similar measure on Jan. 14, and the two versions must be reconciled before the legislation is sent to President Barack Obama, who praised the Senate for approving the bill.

Funding for the expanded program will be covered through increased federal excise taxes on tobacco products, an issue that has raised alarms in many segments of the convenience-store and tobacco-sales industries.

#36 Bill Godshall on 01.30.09 at 2:21 PM

Per John Rolfe’s reply, is it correct to assume that all (or most) cigarillos weigh more than 3 pounds/thousand, and that all little cigars (that come 20/pack) weigh less than 3 pounds/thousand?

#37 Bill Godshall on 02.05.09 at 12:59 PM

The final version of SCHIP (S 275) that Obama signed into law will increase the tax on little cigars from $1.828/thousand to $50.33/thousand (i.e. $.05/cigar) on April 1st , and won’t be phased in over six years (as was in HR 2).

Don’t know if manufacturers of little cigars (or RYO) will offer price discounts to reduce sticker shock, but I wouldn’t be surprised if consumption of little cigars (like RYO declines by 10%-30% (as average retail prices of RYO and little cigars could increase by 50%).

#38 Player210 on 02.05.09 at 1:14 PM

It is just not right….Ws next????
Why dont be just ban smoking altogther…????

#39 John Rolfe on 02.05.09 at 4:57 PM

Bill: You are correct: little cigars<3 pounds / 1000 and cigarillos>3 pounds / 1000 but some of the latter and none of the former deviate from this.

Philip Morris USA just hiked prices yesterday for the second time and virtually all cigar guys did the same a few days ago, except Middleton, which is coming on board now. We are expecting yet another hike pre-April 1 but since this is the shortest timespan between enactment and effective date in the history of tobacco excise tax hikes, consumers will not be spared the bumper shock. On the other hand, look for lots of Internet sales growth and the Native Americans will be doing bigger and bigger business as even those most reluctant to shop over the airwaves jump in propelled by an FET hike that while not creating the State-led price disparity that drives this business will get consumers to look for opportunities to save money nevertheless. Also expect to see more and more unknown foreign brands in the market as foreign sites who will keep their prices constant jump in both feet. Legitimate business will take it on the chin along with US jobs.

#40 NYsmoker on 02.05.09 at 6:38 PM

this bill is going to kill ryo tobacco. In NY the price now is 20.00 for a LB of bulk tobacco lower end stuff with the new tax it will be about 50.00 a LB when you add sales tax. and you still have to buy tubes or papers. I will be growing my own. I wonder what the government is going to do when the revenues are down? and the state as well will be down. And then there will be more bootlegging going on.

#41 Sunny on 02.08.09 at 3:21 AM

Hey New York Smoker just make a trip to a native run tobacco shop. In reality folks should flock even more to the reservations and support the reservations rights against the big and evil poorly run state government of NY. I live in Florida but if I was in NY I’d be making a trip to the reservations. Thank godness Florida has 305’s! Great smoke at a cheap price.

#42 NYsmoker on 02.08.09 at 10:16 AM

The state is going after the indians for the cigarette taxes and it is getting nasty. It is a matter of time it will cost as much as the stores.

#43 T-REX on 02.12.09 at 10:18 PM

I am sick and tired of the F*&^ing idiots in our state goverments and Federal Goverment who think the only thing they can TAX IS CIGARETTES. How about taxing the rich man’s toys like Yachts, Sports cars, caviar, ect. No they want to ruin hard working people who’s only way to relax after working in the hell holes they have to make living. Nicotene is the most powerful addictive drug known to man and that is why the goverment wants to tax Cigarettes. they know that people cannot quit easily, so they have a tax base that is assured. The numnuts who tax the working class can got to HADES. those jackasses in goverment get rich off these taxes any way. why do you think they pass these bills into law to line their pockets using KIDS as their excuse. so F*^% you congress and stick it up your a$$.

#44 Sunny on 02.12.09 at 11:25 PM

Pretty amazing to see the Tobacco companies still take another increase before the government takes their newly found profit!

#45 Kate on 03.15.09 at 7:41 AM

I’ve already stocked up on RYO tobacco and tubes. I’ve ordered seeds for Virginia Gold cigarette tobacco plants. This summer I’ll be growing my own crop. I have plenty of time on my hands since I’ve been laid off for over a year and see no jobs in the future (unless I can find a government job). It is entirely legal (so far) to do so. My smokes will be additive free and more importantly, tax free. Actually, almost free entirely, about $8.00 for the seeds.

#46 John Rolfe on 03.15.09 at 8:37 AM

Yo Kate,

Great to hear that you will be a vertically integrated RYO supplier, from the farm to the consumer. Just one thing, like Eliot Ness during the distillery years of prohibition, don’t think that you will not owe Federal Excise Taxes on your production for sale…so while they may be additive free they will hardly be tax free since the origin of the leaf tobacco has no bearing on whether your product is taxable.

John

#47 Troubadour on 03.15.09 at 11:26 AM

If Kate grows the tobacco and makes her own why would she pay taxes if she just smokes her own product? Then she could give it to folks for free if she choose? ?????

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