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Proposed tax worries cigar shop owners

GALVESTON — Sometimes a cigar is just a cigar. But to island businessmen Charlie Head and Skip Martin, the stogie has become a political flashpoint that threatens to burn sales at thousands of cigar shops nationwide.

The owners of the downtown Hava Cigar Shop and Lounge, 415 21st St., say they’re worried about proposed federal legislation that would slap as much as a $3 nationwide tax on hand-rolled cigars. The existing federal excise tax per cigar is 5 cents.

The business owners are caught in a largely ideological showdown between federal lawmakers about the expansion of the Children’s Health Insurance Program, a federal-state partnership that covers about 6.6 million children.

Republicans have criticized the Democratic proposal as a gateway to socialized health care. Democrats say they want to increase the number of middle-income children enrolled in the program.

House and Senate Democrats were nearing an agreement Friday to spend about $35 billion a year more on the program.

A Senate bill would raise the tax 44 percent with a maximum of $3 per cigar. A House bill would increase the tax 33 percent with a $1 cap. But President Bush could veto any legislation expanding the program. The federal taxation is aimed at manufacturers. But the cost would be passed on to retailers and ultimately consumers.

If passed, the legislation would raise federal excise taxes on all tobacco products. But the focus on hand-rolled cigars is unfair, Head and Martin say.

The businessmen want hand-rolled cigars removed from proposed legislation, arguing that hand-rolled cigars differ from other tobacco products. Cigar consumers consider the product an occasional luxury.

Smokers might pay a higher price for cigarettes, which are addictive, tobacconists say. But cigar consumers, who consider an occasional stogie a luxury, likely would balk at higher prices, industry officials say.

Also, there’s little evidence that cigar tobacco is related to the U.S. health care crisis or children’s health, the industry argues.

With large budget deficits, Democrats are seeking ways to increase non-defense-related spending, Martin said.

So-called sin taxes are the most politically expedient way to get that funding, he said.

Beer and wine isn’t so heavily taxed, Martin argues.

“There’s no reason why a cigar should have a $3 tax,” he said. “It’s very disproportionate.”

Head and Martin are involved in an industrywide campaign to educate consumers and lawmakers about hand-rolled cigars.

Hava Cigar Shop and Lounge is a popular haven for cigar smokers.

With dark leather chairs and a flat-screen television, the shop has the air of an elegant living space.

Its customers go there to enjoy premium products not pay high taxes, Martin said.

“It’s more of a lifestyle,” he said. “If the prices becomes too high, it becomes prohibitive and has the potential to affect our business in a great way.”

Source: Daily News - Galveston County