Senate Democrats go after tobacco tax loophole to increase revenue

A group of Democratic senators introduced a bill Thursday that would close tax loopholes for tobacco companies, generating $3.6 billion in revenue over 10 years.

Democratic Sens. Dick Durbin (Ill.), Frank Lautenberg (N.J.) and Richard Blumenthal (Conn.) introduced the Tobacco Tax Equity Act, S. 194, which would close tax loopholes that allow tobacco companies to avoid the federal cigarette and roll-your-own tobacco tax, by making taxes on pipe tobacco equivalent to cigarette tobacco.

“The current loopholes in the taxes on tobacco products encourage the use of products like pipe tobacco, smokeless tobacco, and 'nicotine candies' as a cheap source of tobacco, particularly among young people,” Durbin said Thursday. “This difference in tax rates doesn’t make sense, and we are already seeing tobacco manufacturers abusing them by changing the labels on their products to avoid paying the higher tax. This bill will stop tobacco manufacturers from gaming the system and protect more children and teens from this dangerous habit.”

The senators said that closing loopholes in the tobacco tax code would generate roughly $3.6 billion over 10 years.

“These loopholes are another egregious example of tobacco companies putting the bottom dollar over public health the well being of our children,” Lautenberg said. “This legislation will stop big tobacco from exploiting loopholes that cheat the government out of tax dollars. If companies won’t do what is right, then we will by working to pass this bill and close the loopholes.”

Currently, small cigars and roll-your-own tobacco products are taxed at the same level as cigarettes but cigars, smokeless tobacco and pipe tobacco are taxed at a lower rate. S. 194 would make sure that all tobacco products are taxed the same as cigarettes, which have the highest tax level.

As lawmakers work to reduce the deficit, Democrats have called on closing tax loopholes as one way to raise revenue to lower the national debt, but Republicans have said the tax debate is over and now is the time to reduce spending in areas such as entitlement programs.

Durbin, Lautenberg and Blumenthal argued that their bill would also reduce federal spending on medical programs such as Medicare and Medicaid because higher prices on all tobacco products would dissuade people from smoking, thus lowering medical expenses from health problems related to tobacco use.

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