Holy Smokes!

On April 1, the new federal tax on tobacco products went into effect. The tax is part of the expanded SCHIP (State Children's Health Insurance Program) funding signed into law in February 2009 by our president. While I'm not sure taxing tobacco and alcohol to fund health coverage for children is the right way to go, the cause is noble nonetheless. The expanded tax funds healthcare coverage for an additional 4 million children, pregnant women, and legal immigrants.

To provide the funding, in part, the bill raised the maximum federal excise tax on cigarettes and cigars from a nickel to maximum of 40 cents. Do the math, folks. That's an 800% increase. All at once, with the stroke of a pen. Holy smokes!

To survive, manufacturers simply pass the tax burden on to the consumer. Simple supply and demand economics illustrate that if prices increases high enough, demand for said product will decrease. And if demand decreases enough, people lose their jobs. Don't believe me? Just ask the employees of Hav-a-Tampa.

Tampa will lose part of its cigar heritage in August when Hav-A-Tampa shuts its factory near Seffner and lays off about 495 employees, closing a factory that has been operating since 1902.

So why is Hav-a-Tampa closing its plant in Tampa?

...the company attributed much of its trouble to the State Children's Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn't say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.

Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.

OK. Adding a possible 35 cents to the price of a cigar may not be enough to make people instantly stop smoking cigars. Cigar smoking is more of a leisure-time activity, rather than an addiction. Thusly, there's still a demand for the product. So, what happens next?

Work that had been done in Tampa will now be performed in an Altadis plant in Puerto Rico, where it has extra manufacturing capacity, McKenzie said.

Yeah, that's it. the jobs will be moved off-shore.

"We can't afford to make these cigars in the U.S. anymore."

Ahh. If the cigars are made in the US, Hav-a-Tampa will have to absorb an 800% increase in the excise tax, payable to Uncle Sam. But if the cigars are made off-shore, no such tax burden applies. So, off-shore they go. And almost 500 American jobs disappear with it.

Want to raise the tax to generate some additional revenue for the noble SCHIP program? Fine. But was it really necessary to do it by a factor of 800%? Do you know of ANY tax on ANYTHING that increased 800% overnight?