Starting on Apr. 1, tobacco users across the country will be faced with a significant increase in the price of tobacco products. The federal tax hike has some local smoke shop owners worried about the strain this legislation could have on their businesses.
The tax increases were included in the Children’s Health Insurance Program Reauthorization Act signed into law by President Barack Obama on Feb. 4. The revenue generated from the act will help finance health care for millions of children in low-income households. The new program is an expansion of the State Children’s Health Insurance Program (SCHIP).
The law will have the greatest impact on the price of loose cigarette tobacco, which is used for hand-rolled cigarettes. The previous tax rate for loose tobacco was $1.10 per pound. But, after Apr. 1 that rate will increase to $24.78 per pound.
At Smokah Hookah on South University Avenue, loose rolling and hookah tobacco comprise approximately a quarter of sales, according to shop employee Amal Awar. The store also sells large numbers of rolling papers, which will be taxed more heavily under the new law.
“It will definitely drop sales significantly, no question about it,” she said.
Despite these concerns of sales declines, an informational pamphlet from the United States Surgeon General’s office makes the argument that tobacco’s addictive qualities cannot be easily overcome.
“Tobacco dependence is a chronic disease that often requires repeated intervention and multiple attempts to quit,” the pamphlet reads. “Effective treatments exist, however, that can significantly increase rates of long term abstinence.”
Proponents of the legislation point to this as a reason that tobacco sales won’t suffer greatly from the heavier taxes.
Despite tobacco’s addictive nature, Chuck Ghawi, the owner of Maison-Edwards Tobacconist in Nickels Arcade, is preparing for a downturn in sales as a result of the tax. Ghawi’s shop deals largely in the sale of loose tobacco, rolling accessories and cigars.
“I can’t see how it wouldn’t have an impact, especially during a recession,” said owner Chuck Ghawi.
Ghawi added that sales numbers have already been down over the past months. He said many people have reduced or eliminated their tobacco consumption to cut down on personal spending.
Rolling cigarettes instead of buying manufactured ones has traditionally been a way for budget-conscious smokers to stretch their dollars. A pound of loose tobacco typically sells for between $15 and $25 and yields roughly two full cartons of cigarettes, while the average cost of a carton of cigarettes — which contains 10 packs of cigarettes — retails for upwards of $50 each.
The tax increase is designed to be a moneymaker for the federal government’s newly expanded children’s healthcare program.
Rep. John Dingell (D-Ann Arbor) an advocate for the expansion of SCHIP and a co-sponsor of the original bill passed in 1997, praised the additional funding.
“High health care costs are straining already-strapped families nationwide. Nowhere is this truer than in my home state of Michigan, where the unemployment rate tops 10 percent,” Dingell wrote in a statement released shortly after the act was signed into law. “With families struggling to save for retirement, save for college, and pay their mortgage, this legislation will help state governments provide health care to children who otherwise would be left behind.”
Despite the controversial nature of the tobacco tax increase, the bill was passed with some bipartisan support. Along with Dingell, freshman Rep. Mark Schauer (D-Battle Creek) voted in favor of the bill, which passed with a vote of 289 -139 in the U.S. House of Representatives.
Two similar versions of the legislation were passed by the House over the past several years, but were subsequently vetoed by President George W. Bush.
“I am pleased that today we will have a bill to send to the President to get signed into law,” Dingell wrote. “And this time there will be no veto pen to stand in the way of providing health coverage to 11 million children.”
With the current budget crunch in Michigan, Gov. Jennifer Granholm has also proposed an increase in the state tobacco tax. The state currently has a 32 percent tax on the wholesale price of all tobacco products, except cigarettes, which are taxed $2 per pack. The proposed increase would double the current tax to 64 percent of the wholesale price.
Although the legislation is currently being debated in the state House, it has been widely opposed by House Republicans.