Cigar smokers fume over proposed tax

It would help insure children

CARY -- Two or three times a week, John Van Houten lugs his laptop and mini desk into the redolent atmosphere of Bill Lee's cigar shop and sets up a work station centered on an oversized ashtray and an overstuffed leather chair.

He might bang out a string of software code, tackle a knotty problem of computer architecture or jump into a conference call on his cell. All of this is punctuated by an occasional puff on a premium, hand-rolled cigar -- a quiet luxury that takes the edge off a pressure-packed job.

But Van Houten, a member of an IBM sports marketing team, believes this haven will quickly disappear if Congress passes a sharp increase in the excise tax on cigarettes, cigars and other tobacco products.

He and other cigar aficionados are outraged by the hit large stogies would take. A bill expected to reach the Senate floor this week could increase the tax to as much as $10 a cigar to help pay for the expansion of a program that gives federal grants to states that provide health insurance to low-income children.

"I think the tax would destroy something I hold dear," said Van Houten, 41, a Cary resident who reckons he smokes about 15 cigars a week. "It's absolutely ridiculous. It's completely unnecessary and uncalled for."

Cigar folks say the tax would double or triple the cost of a hand-rolled cigar and crush retail operators such as Lee, whose store is tucked in a shopping center on the northwest corner of Old Apex Road and Cary Parkway. But supporters of the increase say it's an effective way to raise money to cover health care for more children while anti-smoking activists say the mystique surrounding cigars masks a significant health risk.

The current federal excise tax rate on large cigars is about 20 percent, with a cap of about 5 cents. The Senate increase would raise the rate to more than 53 percent of the sales price charged by the manufacturer or importer, with a $10 cap. The House version would increase the rate to more than 44 percent but would have a far lower $1 cap.

The proposed tax increase's impact would be multiplied as it rippled through the manufacturing and distribution network, said Norm Sharp, president of the Cigar Association of America, an industry lobbying group based in Washington.

Sharp claimed that as a result of the Senate increase and price mark-up, the price of a $2.60 cigar would increase to $8.14. A $5 cigar, a mid-range price for a hand-rolled stogie, would be $15.

"In this country, it's the end of the cigar business -- it just can't survive this tax," said Lew Rothman, president and CEO of JR Cigar Inc., one of the nation's largest Internet and retail cigar sellers, with stores in Selma, Burlington and Statesville.

Most of the 3,500 cigar stores across the country are mom-and-pop operations that play up the social aspects of smoking high-end stogies, and many would be forced out of business by the huge tax increase, Rothman said. The tax would also eliminate thousands of jobs in countries such as Honduras, Nicaragua and the Dominican Republic, where the bulk of the hand-rolled cigars sold in this country are made and much of the tobacco for them is grown, Rothman said.

The legislation also would increase the federal levy on cigarettes by 61 cents, pushing the average price of a pack to more than $4. North Carolina agriculture officials and tobacco company executives say the tax would cost the state an estimated $540 million a year in lost revenue and economic activity, including reduced state tax dollars and a smaller share of tobacco money that pays for economic development and health programs.