2100% Increase
jfreedy
Master
in Tobacco Talk
The end is near!
If this passes we will look like Europe.
If this passes we will look like Europe.
Comments
Sorry but not sorry! I've had about enough.
before the pandemic, I was spending an average $50 a month at pipe club meetings. That’s $600 a year plus any new pipes. Now I’m spending $200 every six months for a total of $400 and I haven’t spent a lot on pipes. This is also my hobby money. She also has money for her hobbies.
First, it seems that the actual increase will be 1,651%, not 2,100%...just to clear that up (see link to Tax Foundation chart at the bottom of this post)
As a side note, it seems as though their objective is to raise the tax, but also bring it in line with roll your own tobacco which is currently taxed at a much higher rate that pipe tobacco.
The current federal rate on pipe tobacco is $2.83 per pound with current blender price per 2 oz. tin of, say, $11.
Under the new rate of $49.56 per pound, if the retailer passes the entire amount along to the customer, this will add $5.84 to a tin, or bring it to $16.84 per 2 oz tin.
That said, I do not think retailers/blenders will pass all of this off because this industry is very much like an oligopoly (i.e., thousands of blenders, but the industry is dominated by a handful of large players). Here's why.
Industries dominated by a few large players tend to either implicitly or explicitly collude to set prices--the latter of which is illegal in the U.S., but not illegal in most foreign settings (think OPEC), but implicit collusion is done all the time. This is where the dominant companies will 'pick a leader' so to speak, the 'leader' sets the prices, then the other big players follow. I've suspected for a long time this is what is happening in the pipe tobacco blending industry. Here's why I think this.
In general, farmers are getting somewhere around $2 per pound (see attached link), but blenders are selling for $11 per tin, or $88 per pound, a difference of $86 per pound. But let's assume that pipe tobacco farmers are specialized and get a little bit more, say $4 per pound instead, that still leaves an $84 per pound difference.
If the blender did nothing to the leaf and simply sent it directly to the customer, at these prices, that's a straight $84 profit per pound or a 4,200% profit.
But, they do have overhead such as storage, cutting, blending, casing, topping, marketing, etc. So, the real question is how much of that $84 goes to overhead? My guess is a hell of a lot less than that does.
I've figured tobacco blenders, the large ones in particular, are making quite a bit of money--and this is a common characteristic of an oligopolistic style industry. Collusive oligopolies tend to break down when profits are squeezed (again, think OPEC), I would suspect there will be quite a bit of absorption of this tax from these firms as they start to compete more meaningfully on prices with the introduction of the tax, meaning that they won't, in fact, pass the entire tax amount along to the customer.
So, I figure the final amount per tin will fall somewhere between $11 and $16.84 per tin...my guess is the blender will split the difference, so we'll probably see tins go from about $11 to $14 per tin, or somewhere in that area.
Just my guess of course.
https://taxfoundation.org/federal-tobacco-tax-proposal/
http://info.ncagr.gov/blog/2021/04/01/research-could-help-n-c-farmers-grow-cigar-wrapper-tobacco-for-premium-prices/
"As a side note, it seems as though their objective is to raise the tax, but also bring it in line with roll your own tobacco which is currently taxed at a much higher rate that pipe tobacco"
Which is also something that has been gripped about on a couple of different fronts. Some of the "Roll-your-own" companies found the obvious tax loophole and just started calling and marketing roll-your-own cigarette tobacco as pipe tobacco. (This in itself is not really new because I can remember some old relatives back in the 60s who would smoke Granger either rolled in cigarettes or in a pipe.)
What you said about how much farmers get paid as compared to the processors is the same in the seafood industry in Louisiana. Shrimpers often get paid less than $2 a pound for fresh shrimp and the stores are getting $5.99 lb. (current price at a local grocery store that has contracts with local shrimpers).
I also don't think the tax increase will be as high as initially proposed. There is still a lot of negotiations to be done before the bill gets voted on. Then there is the question of if the bill passes, when will it go into effect.
I'll just do what I normally do and make a few large purchases before the price is increased.
Do you know if this needs Senate approval?
Yes, it does need both the House and Senate to pass the bill.
https://halfwheel.com/96-billion-tobacco-tax-hike-removed-from-build-back-better-act-draft/401797/
I do believe @riobrusa said "all politicians" so that would include democrats, republicans, independents, socialist, communist and any other fringe idiots.
But, I think he is wrong. I think there are highly intelligent politicians across the political spectrum. I just think they are all liars and sociopaths (or psychopaths) and would be convicted criminals if they weren't politicians.