A plea from Nick Perdomo on SCHIP

[El Presidente]

A plea from Nick Perdomo

Following is a letter I received today from Nick Perdomo with regard to the SCHIP veto.

Dear IPCPR Members, Senator, Congressman, Retailers and fellow Cigar Enthusiasts,

I am the President and founder of Tabacalera Perdomo, based in Miami, Florida. In 1992, my wife Janine and I started our business out of the garage of my home, making and selling handmade cigars. For two years my wife and I were the only employee's of our company and for three years I worked with no pay depending solely on my other job working as an air traffic controller for the FAA. Life was tough working 16 to 18 hour days. We however were very proud of our small company. Through hard work, risk, a lot of sweat and sacrifice we have grown the company to where Perdomo Cigar Company now has over 80 employees in the United States and over 2,000 employees in Nicaragua. I am also proud to say that we just bought a 17,000 square foot building in the Miami Lakes area.

I am just one example of the family owned businesses that make up the cigar industry. There are at least 100 other cigar manufacturers with stories like mine and thousands of small, "mom & pop" cigar retailers across America that makes up this industry. My entire family works in our hand made cigar business. Senator, this hard work and risk are truly the meaning of the American dream.

Unfortunately for myself and the thousands of people involved in the cigar industry, our businesses and livelihoods will cease to exist if the proposed SCHIP cigar tax passes. I beg you to support President Bush's veto; it is the right thing to do. I cannot stress this enough – this excessive tax will put us all out of business. I must state that I am not against SCHIP. I am a proud father of two and of course children are very important to us, however this tax is simply punishing and would put thousands of American families and their workers out of business.

The negative impact of this tax is already being felt. The threat of loosing my company, my home and our employee's careers are very real. My workers here and in Nicaragua are frightened. The rumors of a mass exodus from Central America to cross the border into our Country truly frightens me and many fellow Americans.

After speaking to several people who worked on the SCHIP bill, I honestly don't believe that when they wrote the cigar tax, they did not intend to destroy the cigar industry. However, intentional or not, the proposed cigar tax will have that effect. I am a third generation cigar maker. My family left Cuba because the Government simply destroyed our dreams and took away our business. Please do not let this happen to us again in the land of freedom. I am an honest American businessman and our workers and I work extremely hard.

I would like to discuss the following with you:

• Contrary to popular belief, the overwhelming majority of cigar consumers are middle class. So are the over 5,000 retail cigar stores many of them who are second and third generation. Many people who enjoy a good hand made cigar average 1 to 2 cigars every 2 weeks.

• A $3 tax on the imported price of a hand made cigar can multiply into a $12 to $18 price increase per cigar by the time the cigar reaches the final consumer. No one will be able to afford a hand made cigar after these punitive taxes.

• The demand for hand made cigars is very price sensitive since cigar smoking is more of a celebratory hobby than a habit. Unlike cigarettes, cigar smokers can simply decide to stop buying cigars at any time.

• The proposed cigar tax will cause over 5,000 of small "mom & pop" cigar shops in the U.S. to go out of business not to mention all the distributors. Due to a decrease in sales and their inability to pay the Senate's proposed tax on cigars. This could literally put over 75,000 people out of work. Of course the tax base would then dwindle to nothing. This would hurt SCHIP definitely not help the situation.

• The SCHIP tax increase on hand made cigars would be all but impossible for the government audit and establish the value of a retailer's inventory. This punitive and destructive tax would encourage cigar retailers to hide their inventories so they could just survive!

• The tax will all but eliminate the demand for cigars, therefore not generating the income that Congress anticipates from the tax. Instead, the cigar tax will have a negative earning effect for the government due to lost state cigar taxes, state sales tax, county sales tax, federal income tax, property taxes, and social security tax revenues. This as you can see would be a complete disaster.

• Low cigar demand shall lead to layoffs and job losses at all levels of the cigar industry. Many of the U.S. cigar factories will now be forced to close. Many of these factories have been in existence since the early 1900's. All these people will now lose their job. Remember these are all hardworking taxpayers. This will lead to a greater dependence on government-supported social aid programs, negatively impacting the economy. Not to mention that the cigar makers are true artisans will have done this unique work all of their lives. They will now have to be retrained. Case-in-point—the luxury tax of the 1990's. When the exorbitant luxury tax was enacted, an entire industry (the yacht industry) was decimated, leading to drastic job-losses in shipbuilding yards. These working class Americans were left without incomes to support their families. We still have not gotten over that to this day. I assure you the very same thing will happen here.

• There will be a widespread negative economic and social impact of the cigar tax on developing countries that make cigars and grow cigar tobacco including the Dominican Republic, Honduras, Nicaragua, Mexico, the Bahamas, Ecuador, Columbia, Argentina, Peru, Brazil, Panama, Costa Rica and Cameroon, Africa. Cigars and cigar tobacco are some of the largest exports from these countries and 95% of their cigar exports are to the U.S. market. The rest of the world cigar market is predominantly supplied by Communist Cuba. Honest Americans and their families will lose their jobs and Communist Cuba will become stronger. This is just plain wrong as you can well see.

• The cigar tax will negatively affect the United States international relationships with the above mentioned countries due to the over 750,000 people will loose their jobs because of the American government placing a huge tax on a product that these countries make. This will help fuel anti-American political movements instigated by radical Sandinistas in Nicaragua, Iran's President Mahmoud Ahmadinejad, Venezuela's Hugo Chavez and Cuba's Fidel Castro. Just serveral days ago at the United Nations, Daniel Ortega was spouting off at the mouth on how America is trying to put out over 100,000 people in the streets with this punitive tax. (There are numerous supporting news articles on this and the others). The only true happy one is the tyrant Fidel Castro.

• The unemployment and anti-American sentiment caused by the exuberant cigar tax will make it easier for Iran's President Mahmoud Ahmadinejad to recruit terrorists throughout Central America and increase the U.S. threat of terror attacks from Central and South America. Remember Senator this menace to our country is opening relationships with these countries at an alarming pace. Not to mention the many that will now cross our borders illegally. The estimations alone are between 500,000 to 750,000 people!!

• The illegal immigration from Central America will truly be a crisis for our Country!

• Nicaragua, Honduras and Dominican cigar manufacturers are viewing the proposed cigar tax as a violation of the Central American Free Trade Agreement. And it truly is.

• The proposed cigar tax will add to America's illegal immigration problem due to the huge number of people in Honduras, Nicaragua, Mexico and the Dominican Republic who will loose their jobs due to the proposed cigar tax.

• 95% of all tobacco excise tax revenues at the federal level come from mass-produced cigarettes. Of the remaining five (5) percent, barely one (1) percent of that tax revenue is generated by handmade cigars. Yet our very small industry is again getting hammered!! This relatively small amount of income for the government will be more than offset with a negative economic, social and political impact caused by the punitive and business closing cigar tax.

• The unemployment caused by the cigar tax will lead to drug trafficking problems throughout Central America, the Caribbean and Mexico. That has been stated in all of their respective major newspapers.

• The unemployment caused by the cigar tax will increase crime and gang activity, particularly MS-13, in Central and South America to filter into the United States.

• The cigar industry is not a financial burden to America's health care costs. A more appropriate industry to tax would be the soft drink, snack food and fast food industry since it is a main contributor to our Nation's health problems. Not to mention alcohol. Plus the "junk food" industry could absorb a tax much easier than a small cottage industry like cigars.

• The proposed cigar tax will hurt the many cigar related charities that currently help the people of the Dominican Republic and Central America.

• The current tax cap of $.05 per cigar is in line with similar priced luxury items. Currently the Federal tax on a glass of wine is $.05, a bottle of beer is $.05 and 1oz. of whiskey is $.09. As you can well see the cigar tax is truly unreasonable and totally punitive.

I propose that you increase the tax cap on cigars by the same percentage that you increased the cigarette tax in the Senate version of SCHIP, which is 156%. If you apply this percentage increase to the current $.05 cap, it would increase the cap to approximately $.12 per cigar. Even though I believe that this is still very unfair at least we won't go out of business. If you apply a reasonable cigar tax increase, you would still be more than doubling the cigar tax, increase the government's revenues from cigars and not kill an entire industry.

The majority of the newspaper headlines, news stories and negative publicity about the SCHIP bill are centered on the unfair cigar tax. I know that whenever I have spoken to any Congressman or Senator's or their staff offices, the majority of the complaints have been about the cigar tax, yet the minority of revenue for the SCHIP bill is generated from the cigar tax. It is a shame to have the good intentions of the SCHIP bill be totally overshadowed by the unfair cigar tax.

We deeply care about the cigar smoker and his unfortunately diminishing rights.

In closing, it is extremely important that you all meet and call your local Congressman and Senators as soon as possible. Please let them know that this SCHIP tax on cigars is detrimental to everyone in our industry and for you our customers!! And most importantly tell them to support President Bush's veto.

Sincerely,

Nick Perdomo

President & Founder Tabacalera Perdomo

www.PerdomoCigars.com

[habanablue]

Forget buying and selling, this was THE topic being talked about at this year's RTDA (now IPCPR) in Houston. I was privvy to some behind the scenes meetings before the official opening of the trade show, which were primarily coordinated by Rocky Patel and at which Nick Perdomo was present.

at the time, a presidential Veto was expected, although there were alot of worried cigar makers out there. The call that went out was to repeatedly pressure the US govt about SCHIP.

The industry lobby groups regarding tobacco in the US are amazing and I commented to my RTDA contact whilst there that anything like the scale of action would be unthinkable in Australia (for many reasons).

It's a great letter btw!

[anacostiakat]

The veto was not overridden. No new taxes for now.

Oh, I agree! Good letter and information presented therein.