Sunday, August 05, 2007

SCHIP and Premium Cigars

Ideologically, I find myself somewhat hoist on my own petard...or stoogie.

The State Children’s Health Insurance Program (SCHIP) Bill, co-sponsored by Senators Hatch and Kennedy, and which passed the Senate last week by a veto-proof majority but which has yet to pass the House, would extend health insurance to millions of uninsured American children. The bulk of the program's costs would be financed by an additional 61 cent tax on a pack of cigarettes. Doesn't sound unreasonable to me.

The bill also calls for HUGE increases on premium cigars which yours truly does relish upon occasion. How much of an increase? The current stoogie federal tax is a 5 cents. The House version of the bill calls for about a one dollar tax. Again, I can live with that 2000% increase.

But the Senate version goes crazy, setting up to a TEN DOLLAR TAX per stick! The formula calls for an approximately 53% tax on the wholesale cost. I typically smoke four to seven dollar cigars. A seven dollar cigar runs about $3.50 wholesale, making it $5.25 before markup, and about ten bucks to me if the retailer is going to maintain his margin and stay in business. The fifteen dollar sticks, and believe me, these are more popular than you might think, will start to go for 24 bucks.

What would this all mean? My tobacconist, who maintains a fantastic brick and mortar operation, along with a thriving Internet business, laid it out for me last night (over good cigars, naturally).

He sees many Mom and Pop stores going under. And he sees devastating hits to the Dominican, Honduran, and Nicaraguan economies where the vast majority of the premium cigars are rolled and where the tobacco for the same is grown.

He and another smoking buddy also foresee a tremendous uptick in the Cuban black market in the US. It was news to me that the prices for good Cuban cigars have dropped tremendously over the past couple of years and that several mail-order places operations in Europe and, I couldn't believe it, Japan (where the best deals are to be found), are shipping guaranteed Cubans with guaranteed delivery. US Customs grabs your smokes? No problemo, we'll ship you another box. And the cost? Ten to 12 bucks a stick for a lot of the top brands. That's half of what the prices were about five years ago when I checked out ordering some from Canada.

Hopefully, the House version or something close to it will prevail. I want kids to have health insurance. But I'd like to occasionally indulge in my guilty pleasure on a teacher's salary. It's either that or back to the pipes. With maybe a slightly altered set of politics.