Tobacco Loophole in Child Health Law Costs $250M
Raul Rodriguez leaves a Houston courtroom during a recess Monday, June 11, 2012. Rodriguez is charged with murder in a triple shooting in 2010 that left one man dead and two others injured during a dispute over the neighbor's loud party. The retired Houston-area firefighter told a police dispatcher by phone that he feared for his life and was "standing his ground." (AP Photo/Pat Sullivan) / Pat Sullivan
A tobacco tax loophole in President Barack Obama's children's health insurance program cost the government more than $250 million in its first year, public health officials say.
The loophole allowed companies to avoid huge tax increases on loose rolling tobacco by relabeling their product as pipe tobacco. The simple marketing twist lets companies pay $2.83 per pound, rather than the $24.78 per pound levied on rolling tobacco.
That proved an expensive technicality in the way the government pays for health insurance for poor children. Almost immediately, tobacco companies ramped up production of pipe tobacco to record levels and curtailed production of roll-your-own tobacco.
Daniel Morris, who tracks tobacco production data at the Oregon Department of Health, first identified the loophole late last year. In November, The Associated Press highlighted the millions being lost, but it was unclear at the time whether that represented a short-term change in production or a long-term trend.
The trend has not changed. In March, the one-year anniversary of the tax change, companies produced more than 2 million pounds of pipe tobacco. It was a record month for an industry that steadily produced about 270,000 pounds a month before the tax changed.
In a memo to colleagues last week, Morris estimated the U.S. lost more than $250 million in tax revenue in the first year of the law. States are losing money, too, because many base their taxes for roll-your-own and pipe tobacco on the wholesale price, which includes federal taxes.
"The magnitude was larger than I initially expected," Morris said. "I was expecting that once the loophole was identified, there'd be action to fix it."
Such action has stalled. The Obama administration said last year it would release new rules for differentiating roll-your-own tobacco from pipe tobacco, but it has yet to do so.
"We're still studying, from a technical standpoint, how to distinguish between the two products," said Arthur Resnick, a spokesman for the Alcohol and Tobacco Tax and Trade Bureau.
And on Capitol Hill, a bill to raise taxes on pipe tobacco to the same level as loose tobacco has yet to be debated.
"With the money we're losing, the deficits we have and the priority this administration and Congress have put on health care, to not find that revenue is just wrong," said Rep. Steve Cohen, D-Tenn., who wrote the bill to close the loophole.
Pipe tobacco is normally too coarse and moist to roll into a cigarette, but nothing says it has to be. The administration says the only distinction between pipe tobacco and roll-your-own tobacco is how it's labeled.
Norman Sharp of the Washington-based Pipe Tobacco Council said the small, legitimate pipe industry supports regulations distinguishing between traditional pipe tobacco and roll-your-own tobacco, which he said is being mislabeled.
"It's not really a loophole. It's fraud," Sharp said.
Morris said pipe tobacco production, and the lost revenues that go with it, could climb even higher because of a similar technicality in another law. In trying to crack down on tobacco smuggling, lawmakers prohibited shipping cigarettes and roll-your-own tobacco through the mail.
But the law didn't say anything about shipping pipe tobacco.
AP The loophole allowed companies to avoid huge tax increases on loose rolling tobacco by relabeling their product as pipe tobacco. The simple marketing twist lets companies pay $2.83 per pound, rather than the $24.78 per pound levied on rolling tobacco.
That proved an expensive technicality in the way the government pays for health insurance for poor children. Almost immediately, tobacco companies ramped up production of pipe tobacco to record levels and curtailed production of roll-your-own tobacco.
Daniel Morris, who tracks tobacco production data at the Oregon Department of Health, first identified the loophole late last year. In November, The Associated Press highlighted the millions being lost, but it was unclear at the time whether that represented a short-term change in production or a long-term trend.
The trend has not changed. In March, the one-year anniversary of the tax change, companies produced more than 2 million pounds of pipe tobacco. It was a record month for an industry that steadily produced about 270,000 pounds a month before the tax changed.
In a memo to colleagues last week, Morris estimated the U.S. lost more than $250 million in tax revenue in the first year of the law. States are losing money, too, because many base their taxes for roll-your-own and pipe tobacco on the wholesale price, which includes federal taxes.
"The magnitude was larger than I initially expected," Morris said. "I was expecting that once the loophole was identified, there'd be action to fix it."
Such action has stalled. The Obama administration said last year it would release new rules for differentiating roll-your-own tobacco from pipe tobacco, but it has yet to do so.
"We're still studying, from a technical standpoint, how to distinguish between the two products," said Arthur Resnick, a spokesman for the Alcohol and Tobacco Tax and Trade Bureau.
And on Capitol Hill, a bill to raise taxes on pipe tobacco to the same level as loose tobacco has yet to be debated.
"With the money we're losing, the deficits we have and the priority this administration and Congress have put on health care, to not find that revenue is just wrong," said Rep. Steve Cohen, D-Tenn., who wrote the bill to close the loophole.
Pipe tobacco is normally too coarse and moist to roll into a cigarette, but nothing says it has to be. The administration says the only distinction between pipe tobacco and roll-your-own tobacco is how it's labeled.
Norman Sharp of the Washington-based Pipe Tobacco Council said the small, legitimate pipe industry supports regulations distinguishing between traditional pipe tobacco and roll-your-own tobacco, which he said is being mislabeled.
"It's not really a loophole. It's fraud," Sharp said.
Morris said pipe tobacco production, and the lost revenues that go with it, could climb even higher because of a similar technicality in another law. In trying to crack down on tobacco smuggling, lawmakers prohibited shipping cigarettes and roll-your-own tobacco through the mail.
But the law didn't say anything about shipping pipe tobacco.
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Who put a gun to these peoples heads and made them smoke? Were they forced to light up?
How much of the 250 mil would've went to the children's health...I mean after all the government entities got their cut?
This whole thing deflects from the REAL Question, Why in the world are US Taxpayers paying for everything for someone else's children. I did not make their wife pregnant and I am not an Illegal Alien Anchor Baby. Bottom line you created the children they are your financial responsibility you pay for them including Public School. NO MORE COLLECTIVE PUNISHMENT OF ALL US TAXPAYERS.
I watched an Anti Smoking "Info mercial" with a high pitched "Doctor" (same one in another "Info mercial" saying everyone gets AIDs) saying that he got mesothelioma from secondhand smoke which is a farce. As mesothelioma is from asbestos. In the background about head level was a big arse laser printer with the exhaust at his head level.
Yes, this "Info mercial" was all paid for with US Taxpayer Money.
As far as "Yesterday we learn that American tobacco has more cancer causing toxins than our international counterparts"
Ask the Federal Regulatory Agencies why that is. Especially the Bureau of Alcohol Tobbaco and Firearms (with Alcohol and Tobbaco being "criminalized" by being associated with the same agency that regulates firearms, guilt by association).