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Lining up taxes on tobacco, alcohol

By now, we're all aware - using tobacco and alcohol can be bad for you.
And the way things are looking in Harrisburg and Washington at the moment, they may become pretty expensive as well.

A convergence of timing could mean three new taxes - all of which could have a dramatic effect on how we drink and smoke - could be dropped in our laps by the end of 2007. And if you ask people whose businesses will be changed if the proposals are adopted, their predictions are pretty dire.

The first bit of bad news comes from Washington, where Congress is trying to figure out ways to raise $35 billion to fund a heath-care program for poor children who don't qualify for Medicaid.

Separate proposals in the House and Senate would raise federal taxes on tobacco.

The Senate proposal is the one getting the most attention. It includes a hefty tax increase on a pack of cigarettes - which would go from 39 cents to $1 a pack.

But the proposed increase on premium cigars is the real eye-opener. It would increase taxes on cigars from the current level - about a nickel per cigar - up to a maximum amount of $10 per cigar.

Eddie Moidel, owner of El Fumador cigar shop in Sewickley, said that markup would be difficult to absorb. Moidel said the most popular brand in his shop is Nicaraguan label Padron, which carries price tags of between $2 and $6 for its standard line and between $8 and $25 for a vintage line.

"Does anyone think that the guy who's been buying $2 cigars for years is going to be willing to suddenly spend $12 on the same cigar?" Moidel asked. "It's pretty simple - this will be the end of the cigar industry in the United States if it goes through."

At King Beaver Cigars in Monaca, Vince Orend, the shop's manager, said flatly a tax increase on that scale would put him out of business.

"If this is enacted and I have to pay it on the inventory I have on hand right now, I'll have two choices - take out a second mortgage or close the doors," Orend said. "We'd be closed. Period."

Moidel and Orend have taken proactive measures to make sure Pennsylvania's representatives in Washington are aware that they're not happy with the proposal. Moidel said he's sent a mass e-mail to his customers urging them to voice their displeasure. Orend takes an even more direct approach.

"Any time we have five or six guys in here, I pass the phone around and we call Washington," he said. "That's been an almost daily occurrence for the last couple of weeks."

State also considering taxes

The state may be getting ready to piggyback on the federal proposal. In fact, legislators almost enacted new tobacco taxes in the midst of wrangling over the 2007-08 budget earlier this month, but Gov. Ed Rendell shelved that proposal - part of his health-care package - until the fall.

"The governor decided during the budget negotiations that he wanted to focus on some cost-cutting measures in health care in the short term, and revisit some of the other parts of the health-care package in the fall," said state Rep. Sean Ramaley, D-16, Economy. "We're all pretty sure that those new taxes will come up again in the fall."

Rendell had proposed new taxes on smokeless tobacco products - chewing tobacco and snuff - and cigars. The state currently taxes neither.

"The governor has always questioned the wisdom of taxing cigarettes but not other tobacco products," Ramaley said. "I think he's looking to close that loophole and raise some additional money for health care."

Rep. Vince Biancucci, D-15, Center Township, said many of his colleagues thought the proposed increases - 36 cents per ounce for smokeless tobacco and just over 3 cents per cigar, as well as an additional dime on the $1.35 per pack tax on cigarettes - would be a bit too much.

"Our taxes on cigarettes are already pretty high, one of the highest levels in the country," Biancucci. "My question was how many times can we really go to this well without doing some kind of economic damage?"

Although the state increase wouldn't be nearly as rough as the federal proposal, it becomes easy to understand why it seems to people like Orend and Moidel that the government has placed a bull's-eye on the front door of their stores.

"It's easy to target tobacco, but if we keep doing it and keep doing it, stores like mine aren't going to be able to handle the loss of business," Moidel said. "Is this worth the economic problems it's going to cause?"

Alcohol tax attacked

Think the cigar shop owners sound upset? Try asking Kevin Vance about a proposed 10 percent tax on the sale of alcoholic beverages in Allegheny County. That tax was authorized by the state while Harrisburg was trying to figure out how to fund public transit, and it still must be enacted by Allegheny County Council.

Vance, owner of the Carlton restaurant downtown and chairman of the Pennsylvania Restaurant Association, thinks it's likely that council will adopt the tax at the maximum level.

And that has him hopping mad.

"Maybe the most infuriating thing was that there was no discussion, no debate and no chance for our members to tell Harrisburg what we think about the proposal," Vance said. "Suddenly, it shows up in the papers, and we have to try to do something about it at the county level instead. Bang - we're already behind."

The tax, if it is enacted, would raise $25 million in matching funds for the Port Authority of Allegheny County; Vance said it would also put bars and restaurants in Allegheny County at a competitive disadvantage.

"Your drinks suddenly cost 10 percent more, so what are you going to do?" he said. "If you're close to Beaver County or Butler County, you're going to go buy that drink there instead."

Philadelphia enacted an identical tax in 1994 - when Rendell was serving as that city's mayor - to raise money for its struggling school district. Vance said Philly's restaurants have handled the increase well, but cautioned against comparing the two situations.

"Philadelphia is a major metropolitan area, analogous to New York or Boston," Vance said. "The range of income is higher, the economy is better and people there are better able to afford a higher-priced experience like that. And more importantly, they're accustomed to it.

"Pittsburgh people are more conscious of value, and that's driven by our background as well as our economy. We expect a good service, but we're also looking for that value, and restaurant owners here know there are certain pricing points you just can't cross, because people here won't accept them."

Kevin Evanto, a spokesman for Allegheny County Executive Dan Onorato, said discussion of the tax increase would probably come up as the county begins discussions of its 2008 budget in the fall. Evanto also said it is likely - but not certain - that Onorato would push for the full increase.

"We'll do everything we can with county council to get this stopped," Vance said. "We have to make this clear - this is a major tax increase, and it would be a serious problem for the hospitality industry in Allegheny County."

Source: Beaver County Times