This was only a matter of time:
On January 13, 2010, Rep. Steve Cohen (D-TN) and co-sponsor Rep. Lloyd Doggett (D-TX) introduced bill H.R. 4439 to congress to raise the federal pipe tobacco tax from $2.8311US per pound to $24.78US per pound and “To amend the Internal Revenue Code of 1986 to impose the same rate of tax on pipe tobacco as is imposed on roll-your-own tobacco.”[...]
If this bill passes, the average increase to your favorite blends will be about:
$2.43US per 50gr
$2.74US per 2oz
$4.86US per 100gr
$10.98US per 8oz
$21.95US per 16oz
$24.15US per 500gr
These prices would be added onto the price you are currently paying for those amounts of pipe tobacco. So with the average price of 100gr tin McClelland Frog Morton being about $13.20US, the new price would be $18.06US! That is outrageous!
The motivation for the tax increase is to stop producers of roll-your-own tobacco (RYO) from repackaging their product as pipe tobacco, which is taxed at a lower rate. The two products are very similar and in the past were taxed at the same rate of $1.10 per pound. SCHIP created a huge disparity by raising the tax on pipe tobacco to $2.81 and the tax on RYO to an astronomical $24.62. RYO producers predictably reclassified their products just to keep their companies alive.
The congressmen introducing this bill are correct that the two types of tobacco should be taxed equally, but the solution is to lower the tax on RYO, not to tax both products at the insane new rate.
[Hat tip to the ever-alert Jan!]
Previously:
SCHIP tax avoision
Children, say “thank you for smoking”
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The New York Times ran a timely article this week about states’ reliance on tobacco taxes:
Florida’s proposed withdrawal is perhaps the starkest example of the growing addiction to tobacco-related money. Since 2001, cigarette tax increases and diversions of tobacco settlement payouts have become a favorite solution for budget crises nationwide. But as the current recession deepens, disputes about how the money should be spent have intensified, even as tobacco money’s potency has been weakened by past use.
“While states have viewed tobacco as the first ‘go to’ tax for the better part of a decade, it won’t be anywhere near enough,” said Donald J. Boyd, a senior fellow at the Rockefeller Institute of Government, a research arm of the State University of New York. “Increases in other taxes — yet to be proposed and enacted — will be far larger than in the last recession, and the relative importance of tobacco tax increases will be less.”
At least 17 states, including California and New York, have already sold bonds based on future tobacco settlement payouts and spent some or all of the money before they have it, according to the National Conference of State Legislatures. Moreover, cigarette taxes are also less lucrative than they were a decade ago because cigarette sales in the United States have dropped by more than 20 percent.
Nonetheless, two weeks into the year, conservative, tobacco-friendly states like Kentucky, Georgia and Mississippi are considering sizable tax increases on cigarettes, while some with liberal Democratic governors — including Michigan, Ohio and New Mexico — are looking at ways to redirect tobacco settlement money to close budget gaps or for economic stimulus packages.
One unintended consequence of SCHIP will be its effect on state budgets. It’s a money grab for the federal government, but by more than doubling the tax on cigarettes it’s going to reduce consumption and therefore tax revenues at the state level. With many state budgets already in crisis, that could be a real problem. Smokers’ addiction to tobacco is nothing compared to the states’. As this golden goose gives out, non-smokers may see their own favorite products targeted next.
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San Francisco Chronicle restaurant critic Michael Bauer complains about Healthy San Francisco surcharges still appearing on restaurant checks:
I’m losing patience with the way restaurants are handling the “Healthy San Francisco” initiative.
I’ve been supportive of restaurants such as Delfina (which charges $1.25 a person) and Zuni (4 percent of the check) adding surcharges because these are well-established, moderately priced restaurants. This allowed those businesses to keep prices stable while educating customers about the added expenses. I figured it would last a few months, and once the public was familiar with what was going on, the surcharges would be removed and incorporated into the menu prices…
I’ve talked to some diners who are subtracting that percentage from the tip, kind of as a way to protest about being taxed and taxed again. Those same people wouldn’t mind if each dish cost a little more, negating the need for an additional charge, but they end up feeling cheated when the surcharge lands on the bill. Diners are becoming more vocal, too. Wednesday, in fact, Eater SF began to build a map that details restaurants implementing surcharges.
It’s gotten to the place that I can’t hold my tongue any longer. Enough with the surcharges. Here’s my proposal of how restaurants should handle the situation: Incorporate all these expenses into the menu prices. At the bottom of the menu, the restaurant could say something like: “Our prices include the cost of buying locally produced, sustainable ingredients and providing a living wage, sick leave and health insurance for all employees.”
While it may be unpleasant to be reminded that social policies really do cost money, transparency is a good thing. One of the reasons the scope of government has expanded so much in the past century is that it’s gotten very good at obscuring the tax burden (income tax withholding and the bogus “employer contribution” to Social Security being two of the most egregious examples). The Healthy San Francisco initiative, which requires many SF restaurants to provide health insurance for their staffs, dramatically increases labor costs. Diners should know that the extra dollars appearing on their bill are going towards paying politically mandated benefits, not sourcing better ingredients or taking extra care in the kitchen.
In addition to raising costs, the initiative prevents businesses from expanding because the amounts they must spend on health care are tied to their number of employees. The LA Times reports:
“We will always have 18 [employees] now,” vowed Anna Weinberg, a co-owner of South, a 50-seat restaurant featuring Australian cuisine that opened in October. Weinberg plans to open her next eatery on the Westside of Los Angeles.
San Francisco costs already are among the nation’s highest, experts say. “It costs me triple to hire a waiter than a New York City restaurant,” Scherotter said. Health insurance costs at his Palio D’Asti are doubling to $120,000 a year under the new program, he said…
Local establishments, they point out, already are paying a $9.36 hourly minimum wage, the nation’s second highest and 17% higher than in any other California city. They also are the only employers in the state required by law to grant paid sick days to all workers.
All of which raises the unasked question of why restaurants should be relied upon to cover their employees’ health insurance. Our current system arbitrarily allows employers to pay for health insurance tax-free, but if an individual buys his own insurance he gets no break. This has predictably led to a market dominated by employer-provided health insurance that often leaves restaurant workers out in the cold. Businesses can’t afford to provide coverage, or employees are only part-timers, or they change jobs frequently and go without between gigs. For all of these reasons, making it easier for individuals to buy their own insurance would be better for many service industry workers than tying them to employer-provided plans.
While I’m hesitant to enter the minefield of health care policy, and especially reluctant to be seen as endorsing John McCain (or any other candidate), one bright spot of a McCain presidency would be a more favorable tax policy for workers in the service industry. Fixing the disparity described above is a cornerstone of McCain’s health care plan. He advocates health insurance tax credits for individuals and families, allowing people to buy insurance across state lines to increase competition and decrease costs, and expanding the kinds of associations that can establish group plans. All of these ideas would bring concrete benefits to those of us in the service industry. (Details here. Note that this does leave problems for people with high premiums, a subject McCain will have to further address.)
Is that enough to make me excited about a McCain presidency? Hell no, and I’m not seriously advocating a “Bartenders for McCain” movement. But the change would be a significant consolation if he wins and gets it passed, and one that I doubt many of my friends in the industry are aware of. And if the plan works, San Francisco might finally be able to drop those pesky surcharges.
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Jacob Grier is a freelance writer, barista, mixologist, and magician in Portland, OR. He writes, eats, and drinks a lot. His articles have appeared in The Washington Post, Reason Online, The Oregonian, and other publications.
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