- The Washington Times - Sunday, June 28, 2009

ANALYSIS/OPINION:

Five hundred workers at Tampa, Fla.’s historic Hav-A-Tampa cigar factory will lose their jobs in August. Hav-A-Tampa has operated in Tampa since 1902 and employed many workers for decades. Production is being moved to a factory in Puerto Rico.

The cigar industry already was under siege from state-level tax increases and smoking bans aimed at preventing consenting adults from smoking legal products in public. Opponents predicted that the increase to a 52.75 percent tax capped at 40.26 cents per large cigar would prove devastating to the industry. This is up from the previous 20.719 percent and 4.875-cent cap.

While the economic downturn has had an negative impact on all cigar sales, Rick McKenzie, senior vice president for human resources at Altadis USA, told us sales of the inexpensive, machine-made Hav-A-Tampa cigars dropped significantly after the tax was implemented. The increased cost has resulted in less demand as customers buy fewer smokes. “It appears that people are spending the same amount of money for cigars, just getting less for it,” Mr. McKenzie said.

Demonstrating the perversely regressive nature of the tax, Mr. McKenzie added that his company’s high-end cigar sales are not suffering the same impact. “A 40-cent increase on a 40- or 50-cent cigar is a hell of a lot different than on a $10 cigar,” he said. “It really hit the lesser-end cigars.” Ironically, the tax revenue funds the State Children’s Health Insurance Program, which matches state spending to provide health insurance to the children of the working poor. Such workers are more likely to purchase a cheaper cigar.

Bobby Newman, executive vice president of the J.C. Newman Cigar Co., told The Washington Times that April - the month the new tax took effect - was the worst sales month in the company’s history. J.C. Newman was founded in 1895. The last major manufacturer of cigars in the Tampa area and oldest family-owned premium cigar maker in the United States, it was forced to raise prices 33 percent on the 40,000 lower-end cigars it produces daily in the city’s historic Ybor City cigar district.

“The biggest [cost] component of our cigars made in Tampa now is not the tobacco; it is not the labor and boxing; it is the federal excise tax,” Mr. Newman said. “In an economy that is already suffering, the timing couldn’t have been worse.”

Americans smoke more than 250 million cigars a year, yet most cigar production is oversees. Higher cigar taxes are chasing what’s left of the industry offshore.

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