New 102% Increase in Tobacco Tax To Take Effect Wednesday

Buy your cigarettes now. Cigarette tax one day away

By Owen Morris

Flickr: Valerie Everett

If you smoke, this post won't be news because you've noticed the price of cigarettes jump in the past two weeks. Tobacco companies are getting ready for the increased federal tobacco tax by raising their own prices. (Can someone explain how tobacco companies raising the price of a pack 80 cents will help consumers "adjust," as the companies have put it? It just seems a way to eek more profit.)

On Wednesday, the federal tax will go from 39 cents per pack to $1.01. All the extra tax money is supposed to help fund the State Children's Health Insurance Plan, or SCHIP. I've written about the new excise tax and SCHIP before and how it relates to cigars. On Wednesday the tax on individual cigars goes up as well, by 40 cents. It's steep but not as bad as the original version of the SCHIP law, which called for an outrageous $10 tax per cigar. Now, that will be the tax on a box of cigars rather than an individual cigar. That hasn't stopped the most popular cigar Web site from selling off inventory in what it's calling "SCHIP Busters."

The biggest losers in the new excise tax are the makers of roll-your-own tobacco.

Loose-leaf tobacco is a more fragmented industry with smaller producers than the monopolized cigarette industry. There are even a couple of family businesses still around, but most likely not for long. Wednesday happens to be April 1 and the new excise tax on roll-your-own tobacco looks an April Fool's joke but it isn't. The tax on RYO tobacco goes from $1.10 per pound to $24.78 per pound. That's more than 2,100 percent! Tuesday, a sack of RYO tobacco will cost $15; Wednesday it will be $40.

If there's a silver lining it's that the "loose-leaf" definition doesn't affect pipe smokers. Loose-leaf pipe tobacco increase more than 150 percent but nothing like RYO tobacco. The new tax goes up on it $1.75 to $2.83 per pound.

All of the above have created the tobacco panic of 2009 as smokers stock up. Others are promising the new taxes will make them quit.