An American Nightmare

So you want to be an entrepreneur. Good luck. If your enterprise poses a threat to big business with strong lobbies, you don’t stand a chance. Just ask Phil Accordino of Roll Your Own Tobacco.

If you don’t know what I’m talking about, on Friday July 6, Obama signed into law the $105 billion Highway Bill. The law will effectively destroy the RYO industry. It’s been in the news from The Plain Dealer to The Wall Street Journal to The Huffington Post. It’s produced more outrage than Fast & Furious.

THE AMERICAN DREAM: In 2009, Congress raised the tax on roll-your-own cigarette tobacco from $1.0969/pound to $24.78/pound. Pipe tobacco increased from $1.0969 to $2.8311/pound. Big difference and RYO shops across the country saw an opportunity to save smokers a lot of money while making money for themselves. They switched to pipe tobacco.   

The pipe tobacco didn’t come from the Big Boys, though. In large part, it came from U.S. Flue-Cured Tobacco Growers Inc. The Raleigh, North Carolina-based group is a cooperative of farmers.

Meanwhile, Accordino’s 42 employee company located outside of Youngstown saw an opportunity as well. RYO manufactured and sold rolling machines across the country for about $32,000 a machine. Prior to the Highway Bill, there were about 1,000 RYO shops around the country employing about 5,000 people.

Cigarette smokers saw their costs go from $52/carton down to $23/carton, much needed money that could be used to pay bills or buy food.

All parties were living the American dream. And then the lobbyists came. Altria, parent company of Philip Morris, American Cancer Society and the National Association of Convenience Stores cried foul and demanded RYO be taxed at the higher rates. Caving under pressure – it is an election year and these guys need cash you know – Congress rolled over. Since Congress couldn’t mandate the type of tobacco sold, it found its own loophole. It re-classified the retail outlets as manufacturers. Now RYO not only will have to charge the same as retail stores – about $52 a carton, but stores can no longer operate in zoned retail districts without a variance.

Checkmate!

FOLLOW THE MONEY:  RYOs have denied the U.S. $1.3 billion in potential taxes since 2009. They’ve cut into Convenience Stores profits and there’s no telling what they’ve cost Altria and Liggett the two biggest cigarette manufacturers. But it must be a lot. Altria makes one of every two cigarettes sold in the U.S. Their shipments are down 4%.

So Big Tobacco spent millions of dollars and sent nearly a hundred lobbyists to Capitol Hill over the last few months. They went to their pal Democrat Sen. Max Baucus of MT and cashed in one of their markers. Baucus cleverly inserted the amendment into the Highway Bill… along with $400 million in funding for his state.  

Locally, Reps LaTourette and Fudge, and Sen. Sherrod Brown voted FOR the bill. Sen Rob Portman voted AGAINST the bill. Pres. Obama SIGNED the bill.

Whether you’re a smoker or not, this is heart breaking. It’s a classic case of Big Govt and Big Business teaming up to enrich themselves. Its maliciousness is sickening. Its consequences are devastating. Two competitors destroyed – RYO and the Farmers’ Co-op. An industry ruined. Thousands left unemployed.

It’s an American Nightmare.

America’s Pariah

Last week smokers took another hit when Congress and Pres. Obama approved the Highway Bill. I’m sure some of you out are saying ‘Good!’ In your mind smokers are nasty and they’re dirty. They contribute nothing to society and they cost the taxpayers a bundle. Society is better off without them. Well, let me give you some background on just how much smokers ‘cost’ you.

For starters, less than 20% of the population smokes cigarettes. The majority of smokers are low income. And yet this small segment of the population that can least afford it have improved the quality of life for millions of non-smoking Americans. Don’t believe me?

Every pack of cigarettes sold in Cuyahoga County carries $2.65 of taxes which benefit primarily non-smokers. As far as I could find, little if any, of these taxes go to ‘Stop Smoking Programs’.

The first tax paid is the Federal Excise tax of $1.01. This tax is used to fund S-Chip the State Children's Health Insurance Program. It’s for parents who make too much money to qualify for Medicaid.   

Next is the Ohio Excise tax of $1.25 that goes into the state’s General Fund where it can be used for whatever nifty program the state chooses to spend it on.  

Now comes Cuyahoga County. Voters in 1990 imposed a $.045 tax on smokers to help build Gund Arena, Progressive Field and Browns Stadium. God forbid that the multi-million dollar franchises actually pay for the facilities themselves. Why, they might have to pass those costs along to the people who enjoy the facilities. Can’t have that.

Then in 2006, County voters forced another tax on smokers – $.345 to assist Arts & Culture organizations. Since 2007, smokers have paid over $80 million into this fund. According to Cuyahoga Arts & Culture Annual Report, the money it took from smokers in 2010 (over $17 million) was used to fund organizations that:

Ÿ employed a workforce of 8,710;

Ÿ reached 1,220,884 children thru various programs;

Ÿ and served 6,459,243 residents and visitors.

How much you wanna bet most of the smokers who paid the tax have never enjoyed one of those Arts & Culture institutions they funded?

Okay, so now the smoker is at the register. Guess what happens next. The pack of cigarettes gets hit with a sales tax of 7.75%. Unbelievable – OH and the County are taxing the tax!    

Still not convinced the smoker is enhancing your quality of life? Okay, let’s move closer to home. In 1998 Ohio got $5.5 billion of Tobacco Settlement money to fund Anti-Smoking programs and offset the Medicaid costs of smoke-related health issues. That money is not coming out of the big tobacco companies. It’s coming from smokers to the tune of about $.57 a pack. You didn’t really think the tobacco companies would eat that $5 billion paid to Ohio, did you? In 2007, Gov. Strickland reneged on the deal and marked the money for new schools. I think there’s a lawsuit over this in the works.

In 2010 Euclid voters approved the funding of 4 new schools. The promise was that 41% of the cost would be picked up by the state’s Tobacco Settlement money. $25 million of our new schools is being paid for by smokers.   

Notice that not one of these taxes is going to stop smoking. The ugly truth is that Government doesn’t want to stop smokers. Good grief, why would they want to kill the goose laying the golden eggs? A pack a day smoker pays over $25 a week to fund public projects that for the most part, they’ll never enjoy. But nobody cares because smokers are the American Pariahs of society – the lowest of the low.

The Tax Foundation projects that, “The burden on the lowest-earning 20 percent of households from a cigarette tax is 37 times heavier than if the government raised the money with the federal income tax.”

Folks, just because a program (like Browns Stadium or Playhouse Square) is politically popular doesn’t make it right to fund it on the back of a politically unpopular minority like cigarette smokers. In fact, it’s downright unethical.

But it’s all about greed, getting something for nothing. Government and the non-smoking voters who impose the taxes are equally guilty. The irony of the whole thing is that every cigarette tax increase results in a smaller tax base. Eventually the goose will be cooked and everybody will have to put up. I can hardly wait.