Washington, D.C., May 10, 2012 -
Our organizations strongly support the
legislation introduced today by U.S. Sen. Richard Durbin (D-IL) to close
loopholes in federal tobacco tax rates that have harmed public health by
encouraging use of lower-taxed tobacco products and cost governments more than
a billion dollars in revenue since 2009. This bill to equalize tax rates on all
tobacco products, including pipe tobacco, cigars and smokeless tobacco, is a
necessary and welcome measure that will reduce tobacco use, especially among
youth, and stop rampant tax avoidance. We applaud Senator Durbin for taking
action to help the government recover lost tax revenue while improving health
and saving lives. Sens. Frank Lautenberg (D-NJ) and Richard Blumenthal (D-CT)
joined him in introducing the legislation.
The Children's Health Insurance Reauthorization Act of 2009
increased the federal tax on cigarettes and set the tax rate for small cigars
and roll-your-own cigarettes at the same level as cigarettes. However, larger
cigars, smokeless tobacco and pipe tobacco remain taxed at dramatically lower
rates than cigarettes, making them more affordable to youth and spawning
widespread tax avoidance. In particular, roll-your-own tobacco has falsely been
labeled as pipe tobacco, and small cigar manufacturers have shifted to
lower-taxed products. While cigarette sales declined significantly after the
2009 tobacco tax increase, the availability of lower-taxed products has
encouraged use of these products.
According to a Government Accountability Office study issued
in April, the disparity in tax rates "created opportunities for tax
avoidance and led to significant market shifts by manufacturers and price
sensitive consumers toward lower taxed products." The GAO found that
monthly sales of lower-taxed pipe tobacco jumped from 240,000 pounds in January
2009 to more than 3 million pounds in September 2011, while roll-your-own
tobacco sales dropped from 2 million pounds to 315,000 pounds. During the same
period, large cigar sales increased from 411 million to more than 1 billion,
while small cigars dropped from about 430 million to 60 million.
Federal revenue losses due to these market shifts range from
$615 million to $1.1 billion from April 2009 through fiscal year 2011, the GAO
estimated. A separate study by the Centers for Disease Control and Prevention
found that the relabeling of roll-your-own tobacco as pipe tobacco cost federal
and state governments $1.3 billion in revenue from April 2009 to August 2011.
The GAO recommended that Congress consider equalizing tax
rates on roll-your-own and pipe tobacco and consider options for reducing tax
avoidance due to the rate differential between small and large cigars. Senator
Durbin's bill would fix these disparities by increasing taxes on under-taxed
tobacco products so they are equal to the cigarette tax rate. Among other steps,
it would increase the pipe tobacco tax to the same rate as roll-your-own
tobacco. It would also ensure that all large cigars are taxed at least as much
as a cigarette and would increase the current maximum tax for a large cigar to
about $1. The bill would also increase the tax rate for snuff and chewing
tobacco so that it approximates the tax on a pack of cigarettes.
By closing these revenue-losing loopholes, the Durbin bill
will reduce tobacco consumption and save lives. The evidence is clear that
raising tobacco prices through higher taxes is one of the most effective ways
to reduce tobacco use, especially among children. Closing these loopholes will
help more Americans quit using tobacco and help prevent young people from
getting hooked in the first place.
The recent Surgeon General's report called tobacco use a
"pediatric epidemic," and pointed to increased smokeless tobacco use
among high school students, as well as increased use of cigars, as growing
concerns. Senator Durbin's bill will help stem these disturbing trends
Tobacco use remains the leading cause of preventable deaths
in the United States, killing more than 400,000 Americans each year and costing
$96 billion in health care expenditures annually. Senator Durbin today has
taken important action to reduce tobacco's terrible toll on our nation.