New research reveals fiscal and policy implications of federal tobacco tax loophole
A recent study published in PLoS ONE reports that tobacco manufacturers avoided paying higher taxes on pipe tobacco between April 2009 and August 2011 by relabeling their products. Data on tobacco tax collections were examined to determine the amount of federal and state tax revenue lost between April 2009, when the tax was increased, and August 2011. The study reports that during that time, over $1.3 billion in state and federal tax revenue was lost because tobacco manufacturers marketed pipe tobacco to roll-your-own consumers, and pipe tobacco had a lower tax compared to roll-your-own tobacco. By marketing pipe tobacco to roll-your-own consumers, tobacco manufacturers were able to avoid paying higher taxes. Click here to read more, and click here for the study abstract.
2009 federal tobacco tax increase cut number of youth smokers by at least 220,000 in first two months alone, new study shows
A new study published as a working paper of the National Bureau of Economic Research showed that in the first two months of the federal tobacco tax increase implemented in 2009, the number of youth smokers decreased by at least 220,000, and the number of youth that used smokeless tobacco dropped by at least 135,000. The results were based on data collected from the national Monitoring the Future survey, which is conducted annually among 8th, 10th and 12th grade students. This study is evidence that a large national tax increase can impact the prevalence of tobacco use among youth in a short period of time. To read more, click here. Click here to find a link to the abstract of the working paper.
Large disparities in tax rates for smoking products trigger significant market shifts to avoid higher taxes
A report released by the U.S. Government Accountability Office (GAO) states that as a result of the Children’s Health Insurance Program Reauthorization Act (CHIPRA) of 2009, large federal tax disparities now exist among tobacco products. Significant market shifts by manufacturers and consumers toward lower-taxed products are identified in the report as the reason for this disparity. In an attempt to avoid paying higher taxes, it is reported that many manufacturers have shifted from producing roll-your-own tobacco to lower-taxed products such as pipe tobacco, and similarly, from small to large cigars. There has been a substantial amount in federal revenue losses (about $40 billion) as a result of this shift. GAO suggests that Congress consider equalizing tax rates on roll-your-own and pipe tobacco in order to prevent further revenue losses. Click here to read this article as well as a link to the full report.
Tobacco industry gearing up to take down California cigarette tax initiative (CA)
Tobacco giants Phillip Morris and R.J. Reynolds are preparing to fight the passing of Proposition 29 in California, which would increase tobacco taxes by $1. The companies are spending tens of millions of dollars in support of the No-on-29 campaign that opposes the tobacco tax ballot measure. It has been estimated that the tobacco industry could potentially lose $1 billion in sales due to reductions in smoking prevalence if Proposition 29 is approved; it is predicted that California’s smoking rate would decrease by about 4%. Californians have a history of supporting anti-tobacco initiatives; however, there are concerns about public support for Proposition 29 due to the amount of funds Big Tobacco is spending. Click here to read more.
Illinois Legislature approves $1 cigarette tax hike (IL)
After the Illinois House gave its approval with a narrow majority, the Senate has approved a state tobacco tax hike of $1 per pack. The tax hike will help offset cuts to Medicaid programs. Governor Pat Quinn is a proponent of the tax increase, and the tax will go into effect immediately after the governor signs it. Read more here. Related: State limits distribution of cigarette tax stamps during tax hike debate In efforts to prevent a rapid increase in cigarette tax stamp purchases, the Illinois Department of Revenue is limiting the distribution of cigarette tax stamps while the cigarette tax is under consideration. A spokesperson for the Department of Revenue states that they are basing this decision on a change in alcohol sales when the state excise tax on alcohol was raised three years ago, where liquor sales were much higher just prior to the tax increase compared to afterward. Limiting the distribution of the cigarette stamp tax now would maximize the amount of tobacco-related revenue the state collects. Click here to read more.
Not content with new tax hike, Md. tobacco foe wants more (MD)
Maryland Governor Martin O’Malley signed a bill that includes an increase in the state’s tax on most cigars and smokeless tobacco products. The tax on little cigars will increase from 15% of the wholesale price to 70% of wholesale price, and on all other products, the tax will double (to 30% of wholesale), excepting premium cigars, for which the tax will remain at 15%. Advocates will continue to promote further cigarette tax increases and advocate for raising other tobacco product taxes to levels equivalent to the cigarette tax. Click here for the full story. Click here to read about the Maryland Health Department’s report and campaign about the recent upsurge in cigar use among youth. It was this trend that prompted the campaign to increase tobacco taxes.
Bills would raise Missouri cigarette taxes (MO)
Missouri’s cigarette tax is among the lowest in the nation, and efforts to increase the tax from $0.17 to $1.09 per pack are underway. There are several bills pending in the General Assembly that propose to increase cigarette taxes, which would provide revenue to various programs if passed. Tobacco product manufacturers and retailers oppose these bills; however, upon voter approval of the tax increase to $1.09, Missouri would generate $411 million with at least $73 million earmarked for smoking cessation and education programs. Click here to read more about this tax increase, and here to track bill HB 1976, which underwent a public hearing in the House at the end of April. To read about the 220,000 petition signatures submitted to Missouri Secretary of State Robin Carnahan in support of putting HB 1976 on the November ballot, click here.
Roll-your-own cigarette bill signed into law in Tennessee (TN)
The Governor of Tennessee has signed into law a bill that requires roll-your-own cigarette retailers to pay a licensing fee and tax. It also requires that the tobacco used in retailers’ machines come from the state attorney general’s directory of approved tobacco brands. The passing of this bill is in line with the state’s goal of monitoring roll-your-own tobacco retailers. Click here to read more.
U.S. senators introduce legislation to close tobacco-tax loophole
U.S. Senators Richard Durbin (D-IL), Frank Lautenberg (D-NJ) and Richard Blumenthal (D-CT) have introduced a bill that would close loopholes in federal tobacco tax rates by equalizing tax rates on all tobacco products, including pipe tobacco, cigars, and smokeless tobacco. Click here to read a press release from Senator Durbin’s office, or click here to read the Campaign for Tobacco-Free Kids’ statement on the bill. Click here to track S. 3081, which has been referred to the Senate Committee on Finance.
Call for a ban on duty-free smokes (Australia)
Abolishing the sale of duty-free cigarettes for travelers is now supported by both Australia’s federal government and the opposition party, the Australian Greens. Tobacco control advocates believe the current government’s condoning the sale of duty-free cigarettes sends a contradictory message in light of the ongoing plain packaging court case where the federal government is fighting for tobacco companies to move toward plain packaging of cigarettes, which the tobacco industry is fervently opposing. To read the full article, click here.
Canadian federal excise stamp mandatory on tobacco products (Canada)
Effective July 1, all tobacco products for sale in Canada are required to carry the federal excise stamp. Anyone who does not adhere to this requirement could be charged with a fine, imprisonment, or both. The excise stamp indicates that the federal excise tax has been paid and that the tobacco product carrying the stamp was manufactured legally. The stamp contains color-shift ink as well as hidden security features that only federal and provincial law enforcement agencies can detect. Enforcement of the federal excise stamp is to prevent the sale of counterfeit and contraband tobacco products by making illicit products easier to identify. Click here to read more.
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