Federal Cigar Excise Tax Update

A compromise bill for the State Children Health Insurance Program (SCHIP) funding was finalized late in the evening on Monday, September 24 with mixed news for the premium cigar and pipe industry. The Floor Stocks Tax provision on cigars that was originally in the legislation has been stricken. (at least some good news)

However, the tax rate was reduced by only a fraction, from 53.12% to 52.988%, and the tax cap of $3 per cigar remains.

The compromised bill now goes to both the House of Representatives and the Senate for an up-or-down vote(members of congress must vote either yes or no and no further amendments or changes may be added or made at this time).
Once the bill is most likely approved by both chambers of Congress, the legislation goes to the Whitehouse when President Bush remains adamant he will veto the legislation. Following a presidential veto, Congress will most likely approve an extension of the current of the current SCHIP program that expires September 30, relying on existing government healthcare money to fund the extension - the yet-to-be proposed extension will not rely on any tax increases. This extension will give Congress more time to create a bill that the president may be willing to sign.