Tobacco tax puts strain on Florida cigar makers
Published: Wednesday, April 1, 2009 at 7:48 a.m.
Last Modified: Wednesday, April 1, 2009 at 7:48 a.m.
MIAMI — Inside the rolling room of El Credito Cigar Company, the air is earthy and fragrant, a mix of coffee and nuts tinged with caramel and leather.
Amid those sweet smells, though, workers are worried about a new federal tobacco tax that threatens Florida's $2 billion cigar industry. Starting Wednesday, the tax will increase from 5 cents to about 40 cents on large cigars, a little less on smaller stogies. Cigar makers say the increase will torch jobs and profits — what's left of them in the recession.
Like dozens of cigar companies dotting Miami's Little Havana neighborhood, El Credito uses traditional rollers — or, in Spanish, "torcedors" — to hand make La Gloria Cubana, the company's most famous and expensive cigar. The workers sit at wooden tables and fold tanned tobacco leaves, cut them with a crescent-shaped knife and then roll the wads into fat Churchills, Coronas and Torpedoes.
"Many of our rollers are worried," said Hector Ventura, operations manager for El Credito. "They think that if we have less sales, they will lose their jobs. We know for sure the tax increase will reduce our sales. It's not good for our business, not good at all."
The revenue from the new tax will help pay for a health insurance program for low-income children that President Barack Obama signed into law about two months ago. The State Children's Health Insurance Program, or SCHIP, will extend coverage to 11 million kids.
Florida has long been the hub of U.S. cigar making. In the 1890s, much of the nation's cigars were rolled in Tampa by Cuban immigrants. In the 1960s, another wave of Cubans with cigar expertise opened up smaller shops in Miami after Fidel Castro's communist revolution.
Eric Newman, the co-owner of the J.L. Newman Cigar company in Tampa, said these are the toughest times in the company's 114-year history.
"The last thing we needed was the government to throw this roadblock at us," Newman said. "This could push our industry off a cliff."
Newman said his company will go from paying $1 million in taxes a year to $4 million.
Cigarette smokers are angry they will have to pay 62 cents more per pack, but cigar makers and importers say their industry will suffer disproportionally, especially in Florida where 75 percent of the nation's cigar makers and importers are located.
"This is part of the culture of Miami and of Florida," said Enrique "Kiki" Berger, who co-owns Cuban Crafters Cigars in Miami. Berger's father was a cigar maker in Cuba until his factory was seized by the Castro regime. The family came to Miami and rolled cigars out of their garage until they could open a factory.
Today, Cuban Crafters employs 500 at a factory and a tobacco farm in Esteli, Nicaragua. Another 100 people work in Miami at a warehouse and small factory. The building also serves as a tourist stop and a place where guys smoke, play dominoes and sip strong shots of Cuban coffee.
Berger imports a chunk of his cigars from Nicaragua. He said he will pay hundreds of thousands of dollars more on each imported shipment — and that cost will be passed along to retailers and customers. The price of a pack of 25 cigars — $29.99 — will go up about $10 after the tax, he said. A single large cigar will increase by about 40 cents; Cuban Crafters sells them from $1 to $15 each.
If the smokers puff fewer cigars, Berger said he may shift even more production to Nicaragua to lower costs.
"What will the benefits be for people that manufacture in the U.S.? None," said Berger. "When they made this law, the politicians forgot about the cigar companies that employ people in the United States."
Jeff Borysiewicz, vice president of the Cigar Rights of America, said cigar makers shouldn't pick up the tab for children's health care.
"Kids aren't addicted to handmade cigars," said Borysiewicz, who is also the president of Corona Cigar, an Orlando, Fla.-based manufacturer and distributor. "We're an affordable hobby. We're not part of the problem with children."
Paul Hull, an American Cancer Society spokesman in Florida, said tobacco takes such a toll on health care, it's only fair that all companies contribute.
"For the most part, connoisseurs of cigars tend to be in a higher socio-economic class anyway," he said. "It's hard to imagine this will have an effect on them."
This may not be the last cigar price hike. Legislatures in several states, including New York, Wisconsin and California, are considering raising their state tobacco tax to help in the wake of declining revenue.
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