Up in smoke

Washington’s biggest spenders, ever busy with plans to expand their redistributionist empire, are guided by two primary philosophies on taxation: target unsympathetic constituencies, then insist that said increases will have no effect whatsoever on the economy.

Congress is currently considering a reauthorization and boost in funding for the State Children’s Health Insurance Program, which provides subsidized coverage to lower- and middle-class kids at almost no cost to their parents — in Nevada, quarterly premiums run as low as $15, depending on household income.

To create a bigger constituency, lawmakers want to expand eligibility into the heart of the middle class, which will require $35 billion in new funding.

That’s a lot of revenue for a federal budget already running a deficit. What to do? Remember those core tax philosophies.

Who’s more unsympathetic today than the typical smoker? Banned from lighting up in most public places, smokers already pay dearly for their habit. In recent years, most states have significantly raised their taxes on tobacco products — to the point that sales have declined, leaving governments short of their revenue forecasts.

Now the feds want their bite from the well-nibbled apple core. This reauthorization would raise Washington’s share of the cigarette tax by 61 cents, to $1 a pack.

And the federal cigar tax, based on the manufacturer’s wholesale price, would jump from 4.8 cents per stogie to a maximum of — brace yourself — $10 per cigar. Stores would be forced to roll this cost increase into their retail prices, which is already typically twice the wholesale price. The consumer then would be asked to absorb the entire burden — including a higher sales tax payment.

Lawmakers, eager to grow citizens’ dependence on the federal government for health care, claim the higher taxes won’t hinder tobacco consumption.

Fat chance. Chris McCalla, legislative director for the Retail Tobacco Dealers of America, said the proposal could double or even triple retail cigar prices in the United States because the tax would apply every time a cigar is transferred at the import, distribution and retail levels. He said consumers won’t be willing to pay $12 for a cigar that cost $4 a week earlier, and that the tax would drive most of the country’s 3,600 specialty tobacco retailers out of business as a result.

No sales, no tax revenue windfall for health care.

But wait — there’s more! “On top of this consumer burden is a floor tax, where those holding stocks of cigars would be forced to pay a one-time tax to cover the gap between the old and new tax (rate), or 32.6 percent,” David Savona wrote in his Cigar Aficionado blog. “Imagine you’re a cigar distributor, and you have 100,000 cigars, worth an average of $5 each. You’ll have to write a check to the government for $163,000. Now imagine having 1 million cigars in inventory. That’s $1.6 million, gone in one night.”

Smoking isn’t healthy. But Congress apparently learned nothing from Washington’s failed luxury taxes of the ’90s, which included a 10 percent levy on new-boat sales of more than $100,000. Rather than pay higher taxes, the rich declined to buy or went abroad to shop for their ships, sinking the American yacht industry and costing thousands of craftsmen their jobs. “The ruinous legislation never generated enough revenue to pay for collecting it, let alone to replace lost payroll and corporate income tax from boat-builders,” The Virginian-Pilot reported.

It doesn’t matter whether you loathe cigar and cigarette smoke, or whether you think the federal government should spend more to prop up state health care. If Congress endorses this debacle, how long before lawmakers come after your indulgences or your industry to pay for government programs that benefit someone else?

This legislation deserves the match — and, if it passes, President Bush’s veto.