• Home »
  • Editorial »
  • Obama Hurting U.S. Small Business by Easing Restriction on Cuban Cigars – A David Garofalo Editorial

Obama Hurting U.S. Small Business by Easing Restriction on Cuban Cigars – A David Garofalo Editorial

1PLEASE… stop asking that question… The Cuban Embargo is NOT Over, but there has been yet another kick in the cojones for American businesses and the creation of an unfair playing field, if you ask me.

Americans traveling abroad can now return with all the Cuban cigars and Cuban rum they want and 2they don’t go through any of the same pesky regulations and taxation that all other cigars have to go through. This “free pass” was the most recent “Executive Action” which went into effect immediately and without any blessing from Congress or the Senate, saying “travelers can purchase unlimited quantities of Cuban cigars in any country where they are sold so long as they are for personal consumption.” These are tax-free cigars and cigars that do not have to go through the same FDA restrictions all others do.

All other cigars except Cubans have to first pay the Federal, State – Children’s Health Insurance Program (S-CHIP) Tax which was incidentally the very first new tax signed into law under the Obama administration on February 4, 2009. This is a tax on cigars, which by the way the highest tax increase in U.S. History. The tax rate today stands at 52.75% of the sales price of each cigar. There is a cap on this tax of 41 cents per cigar. Cuban cigars taken into the U.S. legally will not have to pay this tax but, as they say in the infomercials… Wait, That’s Not All!

Next comes the State Tobacco Taxes. These taxes top-off at as much as 95% of the cost of cigars in States like Washington and Minnesota, 92% in Vermont, Utah at 86%, and Hawaii at 70% just to name a few. Cuban cigars being brought legally into those states will pay zero.

Some cities in our over-taxed and over-regulated country also impose taxes on cigars separately and compounded. Again, legal Cuban cigars brought in from other countries will pay none of those taxes.

Oh, let’s not forget our State sales taxes, another compounded tax which taxes the tax, which already taxed the other tax. This is not the case for the legal Cuban cigars that people are legally taking into this country as we speak, they will go untaxed and unregulated.

Don’t get me wrong, nobody likes paying taxes, and I am all for less taxes and less regulations and I’m not asking for these Cuban cigars to be taxed or regulated, but what I am saying is; it’s just not fair.

American companies are at a serious disadvantage here, with over regulation and tax burdens Cuban cigars don’t have to deal with. Which takes me to the over-regulations.

3As of August 8 of 2016, the Food and Drug Administration (FDA) began regulation of cigars for the first time in history. The regulations include a user fee that must be paid on all cigars, except legal Cuban cigars brought in by Americans traveling abroad. The regulations also require very expensive and time consuming FDA testing on all cigars that were introduced to the market after February of 2007 (9 years ago), referring to the Family Smoking Prevention Act. Also, no new cigars or sizes can be introduced into the marketplace after August 8, 2016 without FDA approval, which seems near impossible to happen. This too is something legal Cuban cigars will not have to go through… you can just bring them in, all you want, tax-free and regulation free.

Now there is some cost, there is a duty of 4% after about the first 100 duty free cigars are purchased per person (every 30 days) but that is minuscule in comparison to what a cigar retailer has to pay to get cigars to his or her shop to operate their business. This takes me now to American businesses, jobs and the pending grey market explosion that is imminent.

As a cigar retailer, who has spent over 30 years of my life building a small business, employing people, paying wages and collecting and paying taxes for all forms of our government through these erroneous taxes and regulations I am now at a considerable disadvantage. Grey market Cuban cigar businesses, whether they be cigars masquerading as Cubans or now, the real deal, are already flooding cigars into this country. Untaxed, unregulated, and unfairly sold by people who do not have tobacco licenses nor need them, people who do not carry employee costs including health benefits, FICA taxes or any operational costs. Our competition is now any traveler, and they are getting better rates and costs and our businesses are already suffering.

Cuban cigars are the forbidden fruit here in the U.S. and after 55 years of waiting for the day we can sell them legally, an “Executive Order” goes into place that allows our customers to legally buy them, but not from our shops but just outside our country. This further pushes sales away from our shores and to any and every other country, hurting the small business owners in this country. That is just the latest obstacle that is currently effecting the mom and pop cigar retailer, but what about the small manufacturers? Manufacturers who compete directly with Cuban cigars globally have their own problems now.

U.S. Cigar manufacturers have plenty of taxes and regulations and must now compete with tax-free, regulation free products that are seen as something very special, something not even the cigar retailers who sell cigars for a living can obtain. This now creates an allure and an unfair playing field.

5What about Trademark restrictions? This action can and does present big problems for American tobacco companies. Trademarks that are held by U.S. companies will be negatively affected, as some are the same names as Cuban brands, causing confusion while allowing further exploitation by this policy for allowing imports of these cigars. Travelers returning to the U.S. with some cigars will be violating U.S. trademarks laws, but nobody seems to care.

4Expect the same reaction in the liquor industry as we see Cuban Rum being brought into the U.S. with the same lack of restrictions and without taxes just as the Cuban cigars. The liquor stores in the U.S. can’t sell this product but Americans traveling abroad can and are bringing it in on each and every international flight or when crossing our boarders. That’s over one million people per day, it happens over 400 million times a year. Both of these products are sold at the border and in International Duty Free Shops around the World, hurting the American small business owners and operators.

In closing, I’ve waited over 30 years of my business life for the ability to sell Cuban cigars, something I thought and hoped would bring a lots of added attention to the whole cigar industry and create a boom for my business and everyone else’s. It could have made for some interesting events and proven once and for all what country makes better cigars, has better tobacco or at the very least create plenty of added debate about it. This action by our President has taken away the small businesses shot in the arm I had hoped for and turned it into a punch in the belly.