Don't Mess With Taxes

Photo by Mohd Jon Ramlan on Unsplash

The Food and Drug Administration is now sifting through the public comments it received on its proposal to ban the sale of flavored cigars.

It may take a while. The agency got more than 71,600 comments before the comment period ended on Aug. 2.

The pro and con remarks came from individuals who sell as well as enjoy cigars. Businesses, large and small, along with their professional trade groups, also let the FDA know their positions.

Health issues, freedom of personal choice, economic concerns, and potential increases in illegal tobacco product sales were among the arguments for and against the FDA proposal.

So were taxes.

Taxes high on list of those opposing the ban: A quick search of the word "tax" in the online submissions turned up 53,133 mentions of the money such sales provide various levels of government.

That doesn't mean almost three-quarters of the commenters cited taxes. Some submissions used the T word multiple times. But still, that's a lot more folks with excise taxes on their minds than I would have thought.

Lots of lost tobacco tax revenue: Most of the tax talking comments were a variation of the one below from an anonymous commenter.

In 2020, the cigar product category paid a total of $631,680,899 in federal excise taxes.… Further, cigars are subject to various state excise and sales taxes ranging from no tax to 95 percent…, including programs that promote tobacco control, and losing out on hundreds of millions in excise tax… In 2020, the cigar product category paid a total of $631,680,899 in federal excise taxes.… Further, cigars are subject to various state excise and sales taxes ranging from no tax to 95 percent… including programs that promote tobacco control, and losing out on hundreds of millions in excise tax.

Sounds like the anonymous commenter might be a follower of the Tax Foundation, which also submitted a document detailing the tax cost of ending flavored cigar sales.

"The FDA's proposal to ban flavored cigars would be a disruptive force in the cigar market and would carry significant revenue implications for many state governments," wrote Adam Hoffer, director of Excise Tax Policy at the Tax Foundation.

Since flavored cigars make up between one-third and one-half of all cigar sales, Hoffer said the estimated aggregate effect of a ban on flavored cigar sales in the United States be a loss of $836 million in excise tax revenue, at the combined state and federal levels, annually.

"This estimate does not include lost revenues from state sales taxes or import and customs duties," added Hoffer.

Costs spread across the country: The Washington, D.C.-based tax policy group's FDA submission included its state-by-state breakdown of a flavored cigar ban. You can see that table in the organization's very similar no-ban online post, which also includes the handy cigar tax map shown below.

In addition to the lost state tobacco taxes, Uncle Sam would see a revenue drop.

The federal government taxes small cigars at the same rate as cigarettes, which is $1.01 per pack of 20 cigars. The U.S. Treasury gets an excise tax on large cigars of 52.75 percent of the manufacturer price up to a maximum of $0.4026 per cigar.

Other as yet unknown costs: In closing his official FDA comments and Tax Foundation post, Hoffer also warns of the law of unintended consequences.

"History is full of costly lessons from unforeseen reactions to prohibitions. If the goal is to reduce smoking, high taxes and product bans are a costly and relatively ineffective means for reaching that goal," wrote Hoffer.

Blowing smoke addendum: I just posted a companion item with a cool smoke rings video at my tumblr blog Tumbling Taxes.

Yes, I said cool. It might not be healthy, but the guy in my tumblr piece has a real talent for blowing smoke. 

You also might find these items of interest:

• Sin taxes don't pay off
• How Prohibition made us more reliant on the income tax
• Raise a glass to today's tax-influenced anniversary of Prohibition's repeal
• Japanese tax officials holding contest to encourage drinking…and alcohol tax collection

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