Taxing Times

The Democrat controlled Congress has sought an extra $35-billion to $50-billion for the state children's health insurance program. The program distributes payments to the states to help buy coverage for kids not poor enough for Medicaid.
Cigarettes, which accounted for more than 95 percent of tobacco tax collections last year, are the main focus of the bill. Federal taxes on a pack would jump from 39 cents to $1.

But the legislation has dragged cigars along for the ride. The industry operates under a 4.8 cents-per-cigar tax cap.

Under the proposed bill, taxes on "large cigars," a category that includes all but the tiny cigars sold in 20 packs like cigarettes, would rise to 53 percent.

A U.S. Senate version of the bill under consideration today in the Finance Committee sets the maximum tax per cigar at $10.

While the idea of raising taxes to alter consumer behavior is an often used excuse for tax increases, the real purpose is to raise revenue. It's a sin tax, and the supporters are counting on that fact to garner support. States around the country have been increasing taxes on cigarettes religiously, and the federal government wants a piece of the pie.

I don't expect that the tax on cigars will jump to $10 per cigar, it would certainly make room for a significant increase in the tax.