Blog - Congress Eyes 775% Increase on Pipe Tobacco Tax

Earlier this year, Congress passed and the President enacted a major tax increase on tobacco products as a way to pay for subsidizing health care for low-income children. The total cost of federal cigarette taxes went up 62 cents per pack to $1. But taxes on roll-your-own tobacco went up even higher, from $1.10 to $24.78 per pound. That’s a 2,250% increase. Don’t believe me? Read it for yourself in the bill text here.

When this tax increase took effect earlier this year, many roll-your-own smokers were worried that it would put ther brand of choice out of business and that what would be left for roll-your-own tobacco would be too expensive to afford. But that didn’t happen. Instead, manufacturers of roll-you-own tobacco sought out and exploited a loophole in the bill. They simply relabeled their roll-your-own tobacco brands as “pipe tobacco,” which is taxed at about a tenth of the new roll-your-own rate, and kept right on selling the exact same product to their customers, now with a picture of a pipe on the label.

The Associated Press estimates that the government could be losing as much as $32 million per month in tax revenue because of the loophole. That’s money that the government had budgeted in and the loophole is going directly to increasing the federal deficit. Needless to say, Congress is looking to fix the problem.

The plan appears to be to increase the pipe tobacco tax by 775% so that it is taxed at the same rate as roll-your-own tobacco. A bill "To amend the Internal Revenue Code of 1986 to impose the same rate of tax on pipe tobacco as is imposed on roll-your-own tobacco (H.R. 4439) has been proposed by Rep. Steve Cohen [D, TN-9] and has been referred to the House Committee on Ways and Means. With deficits running as high as they are right now, you can expect that this bill will move and eventually become part of the federal budgeting plan for fiscal year 2011.

The bill is currently surging in the blogs according to OpenCongress’s unique aggregation of blog posts on legislation. See the blog coverage of this bill for more commentary and some ways that you can get involved in the debate over tobacco taxes.

Photo of man with absurd pipe used under a CC license, courtesy of Flickr user fran.pregernik.

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