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Cigar store owners fuming over tax plan

Some cigar shop owners are furious over a federal tax increase proposal that would fund an expansion of the State Children's Health Insurance Program.

The U.S. Senate Finance Committee July 19 approved a bill that would raise tobacco taxes, with the largest income coming from cigarettes but the largest tax increase imposed on cigars. Large cigars would be taxed 53 percent of the manufacturer's price, up from 21 percent, and capped at $10, up from the current tax cap of about 5 cents. Cigars costing $18.87 or more would have a $10 tax. (The proposed cigarette tax is $1 per pack, up from 39 cents.)
"It's ludicrous. Why don't we just tax people who eat fish?" said Joseph Cohen, owner of Classic Cigars and British Goodies in Frederick. "It's about time the government starts doing something real for the economy to afford medical insurance as needed instead of attacking little groups who have no defense."

Advocates of the bill, which could go before the full Senate this week, say the insurance program needs an additional $35 billion to $50 billion over the next five years to continue providing insurance for 6 million to 9 million children from low-income families who do not qualify for Medicaid.

The roughly $5 billion program, a partnership between state and federal government, started in 1997 with funding from tobacco taxes and is set to expire Sept. 30. Maryland's version of the program launched in July 1998 and enrolls more than 100,000 children annually, said Maryland Children's Health Program statistician Patricia Holcomb. Last year, 2,818 children in Frederick County were enrolled.

Maryland is among the states with the highest income eligibility requirements by insuring children in families with income up to 300 percent of the federal poverty level.

The Senate Finance Committee chairman, Sen. Max Baucus (D-Mont.), who co-sponsored the bill, said he was pleased with the step toward renewal, and hoped to expand government-funded health insurance to more low-income families.

"Millions are depending on Congress to renew this program with real funds and real outreach to help uninsured children in need," Baucus said in a statement July 19. "I hope the Administration recognizes the importance of this program."

Cigar lovers are not as enthusiastic.

David and Steven Castro, owners of Davidus Cigars, which has locations in Potomac, Gaithersburg, Olney, Ellicott City, Frederick and Urbana, are also rallying against the proposal, saying the tax could "shut down the premium cigar industry" in a mass e-mail to friends, family and media last week. The front page of the Web site calls for cigar lovers and supporters to contact their senators and oppose the tax increase.

The Senate Finance Committee's $60 billion plan calls for a funding increase of $35 billion to continue it for five years, while a House version would increase funding by $50 billion.

With lawmakers such as Rep. Roscoe Bartlett (R-Dist. 6) of Buckeystown "looking at this very carefully" according to Bartlett's spokeswoman Lisa Wright, President Bush has vowed to veto the plans, saying $5 billion would be more appropriate to continue the program without harming private insurers.

"[Bartlett] has a lot of investigating to do on this proposal," Wright said. "I can tell you he's very concerned and looking into a proposal that would remove the citizenship requirements to receive SCHIP and Medicaid services."

Granville Smith, owner of Signature Cigars, which has locations in Rockville, Bethesda and Washington, D.C., said he is relieved the proposal may be vetoed this year, but fears a new administration would approve it. He has sent notices to all his customers and contacted both Rep. Christopher Van Hollen (D-Dist. 8) of Kensington and U.S. Sen. Barbara A. Mikulski (D).

"Our industry is mobilizing, sending out e-mails and packets," Smith said from his Rockville store Monday. "Every customer thinks it's insane. ... [Lawmakers] are basically putting an industry out of business."

Cohen, who sells cigars for between $3 to $25 apiece, said he doubts the tax would affect his cigar sales as customers will likely continue paying for their pleasure, but thought targeting a group addicted to tobacco with a "sin tax is just wrong."

Cohen said the cigar tax proposal will be the hot-button topic at the annual Retail Tobacco Dealers Association (RTDA) convention Saturday in Houston. He plans to garner a wealth of information at the meeting to share with local cigar retailers also alarmed by the possible tax increase.

This week Cohen displayed posters from the RTDA in his Market Street storefront to shore up opposition and awareness of the tax proposal.

"The people who are trying to put this tax on are either stupid, dumb, immoral or all three," Cohen said. "They're expecting people who are addicts to pay for children to get over their health problems. They should make it a universal tax."

Source: Business Gazette