Do you remember the yacht tax? Passed as part of a luxury excise tax on the rich in George H.W. Bush's tax increase in 1990, it produced much less revenue than expected and killed off 7,600 jobs in the boat building industry, according to a column by George Will. It was such a bad idea that by 1992, both Republicans and Democrats wanted it gone. It took a few years before the industry bounced back. Even principles of economics textbooks refer to it now as a disaster.

If only Congress would read those textbooks. For in their desperate search for money to pay for a new federal child health insurance program, the muttonheads in the Democratic Party are at it again. This time it's cigars.

The Democrat controlled Congress has sought an extra $35-billion to $50-billion for the state children's health insurance program. The program distributes payments to the states to help buy coverage for kids not poor enough for Medicaid.

(Note: Part of that money would go to expand SCHIP, the insurance program, to families at four times the official poverty guideline which, according to Kim Priestap, would by over $82,000 for a family of four.)

Cigarettes, which accounted for more than 95 percent of tobacco tax collections last year, are the main focus of the bill. Federal taxes on a pack would jump from 39 cents to $1.

But the legislation has dragged cigars along for the ride. The industry operates under a 4.8 cents-per-cigar tax cap.

Under the proposed bill, taxes on "large cigars," a category that includes all but the tiny cigars sold in 20 packs like cigarettes, would rise to 53 percent.

A U.S. Senate version of the bill under consideration today in the Finance Committee sets the maximum tax per cigar at $10.

"We are a very small industry. We're the fly. The cigarette industry is the elephant as far as tax collections are concerned," Newman said. "We've been roped in with conglomerates that own cigarette companies."

The city of Tampa has 1000 employees in cigarmaking, including 900 at the Hav-A-Tampa plant owned by Altadis. As the article points out, it's very hard to argue against a sin tax when the revenue is earmarked for reducing the costs of the sin (sort of.) But it is nonetheless a very damaging story to that industry, and you would have thought the yacht tax debacle would have taught us something.

Labels: economics, politics, taxes