Washington Post Editorial 8-3-14

[jbbaldwin]

Offered without comment:

Raising all federal tobacco taxes can stop tax avoidance
By Editorial Board August 2 at 6:27 PM
ENACT A LAW, and companies will find loopholes to exploit. That was the fear which drove lawmakers in 2009 to raise cigarette taxes together with taxes for roll-your-own tobacco and small cigars, both easy substitutes for cigarettes. To prevent manufacturers from shifting toward lesser-taxed alternatives, Congress equalized taxes between all three products — hiking the existing roll-your-own tobacco tax by over 24 times and small cigars by over 27 times.
These products have plunged in sales since 2009. But tobacco manufacturers, unfazed in their quest to fatten their purses, found a new loophole. Unlike these three highly taxed tobacco products, post-2009 taxes on pipe tobacco and large cigars are relatively low. All it took to shift consumers to those products was relabeling roll-your-own tobacco as pipe tobacco, and slightly adding weight to qualify small cigars as large cigars. As evidence from a recent Senate finance committee hearing shows, the popularity of pipe tobacco and large cigars have exploded.
That market shift has cost the federal government up to $3.7 billion in forgone revenue. Even worse, it’s hampered the effect of high tobacco prices on preventing teen smoking.
The first instinct might be to blame the Alcohol and Tobacco Tax and Trade Bureau, which has yet to sharpen definitions of many of these products. While action by the bureau could help close the loopholes, it faces a daunting task. For example, where should it draw the line between roll-your-own and pipe tobacco? In many cases, “it is difficult to establish objective physical standards for differentiating between the two products,” the bureau’s chief said in his testimony. Sometimes the difference is virtually nothing at all.
So forget rewriting definitions. The foolproof solution is for Congress to pass a law equalizing all tobacco taxes. That would raise taxes for pipe tobacco and large cigars to the same level as cigarette taxes, preventing any market shift. A bill introduced by Sen. Richard Durbin (D-Ill.) in 2013, still stuck in committee, would accomplish this task.
Better yet, Congress should hike all tobacco taxes — not just the lower ones — up to higher and equal levels. State taxes vary widely, from $4.35 per cigarette pack in New York to $0.17 per pack in Missouri, making smuggling a big problem for law enforcement. The current cigarette and small cigar federal tax is a meager $1.01 per pack of 20; a higher federal tax would diminish the effect of inconsistency between states and allow for a more uniform response.
These are two common-sense solutions to close tobacco tax loopholes. But the problem of tobacco manufacturers exploiting definitions has another dimension. The Food and Drug Administration, the other arm of the U.S. public health response, has proposed a long-awaited rule to expand its regulatory authority over “all” tobacco products. But premium cigars may be exempted from these regulations, potentially allowing manufacturers to “sweep other cigar products under its umbrella,” as the FDA has admitted before. This proposed exemption, as demonstrated by the tax avoidance case, is a disaster waiting to happen.

 

[papipeguy]

The RYO guys didn't do us any favors by re-labeling as "pipe tobacco". I also suspect any $ numbers on "foregone revenue". The fact is, that budget estimates on revenues from sin taxes are always short. So when that happens other revenue streams are sought. You'll never read anything about what happens when an industry is taxed out of existence. The moralists will claim victory by ridding the world of a scourge and saving health costs to benefit everyone on earth. BS of course but that's what they'll do. From the money end (and always follow the money) the Feds will have to zero in on other things to tax to keep the funds flowing.

This stuff is very, very tiring.

My brain hurts now. I must heed the call of my Famous Grouse bottle.

 

[brian64]

Among the many delusions the author of this editorial is operating under is the following:
Making ALL tobacco products unaffordable for the average person will somehow INCREASE tax revenue for the government and REDUCE smuggling.
And this he/she believes is "common sense".

 

[keith929]

+++1 Brian

 

[woodsroad]

If we start at the premise that 98% of all taxes are confiscatory, then it is easy to understand this statist's point of view: Whatever it is that you pay in taxes, it is not sufficient.

 

[yaddy306]

So the author is saying that the tax hike on cigarettes would have reduced teen smoking, but there was a market shift to lower-taxed cigars and pipe tobacco?
That explains the crowds of teenagers smoking pipes that I see every day! :roll:

 

[dmcmtk]

All taxes are to low, the government needs to spend more money, low taxes cost the government money,we need foolproof, common sense solutions, especially when companies are on a quest to fatten their purses, and avoid the disater waiting to happen if people are left alone to make their own choices, it's a daunting task, but people must be convinced that the government and its regulatory agencies know better! Enact a law! Enact many laws!! We must create a better society!!!
Is that a fair synopsis?
Dave

 

[woodsroad]

"Is that a fair synopsis?"

Beyond fair.

"Aptly named "Dick" Durbin has really gone the extra mile his whole life to live up to the bag-o-shit image that he has so carefully cultivated."

Or as Mark Levin says, "Little Dick Durbin"

 

[conlejm]

Just my opinion, but I think most people in America would be ok with hiking taxes on all tobacco products to preposterous levels, because most people in America don't use tobacco products. According to the latest CDC figures, about 18% of adults smoke. That is clearly a minority, and while there are always some non-smokers who will vote against raising ANY taxes, the vast majority of Americans just don't care about smokers' rights or freedoms. The fact that tobacco products are generally agreed to be unhealthy just underscores that way of thinking. Most people don't think about the loss of personal freedoms, or slippery slopes, until something they "do", "use" or "believe" comes under scrutiny by the Government. If they were talking about raising taxes on gasoline, or clothing, or something else that everyone uses, we would have a real fight on our hands.
To me, it is a foregone conclusion that these tobacco tax increases will become a reality in America, as they seem to already have become in other countries. So ... over the last four months I have amassed 110lbs of pipe tobacco, and I will continue to add to my cellar until it becomes prohibitively expensive to do so. And then I will smoke it all down. Of course I will vote against these tax increases whenever possible, but I am only one of the 18%, so I am realistic about the outcome.

 

[ruscho]

Tobacco is going nowhere, I am yet to hear of a vice that has disappeared.

I'm also not so spooked by taxes, considering that right now you can get a pound of good tobacco for $30. Even if they tax the hell out of it and you have to pay $60, it's still very affordable.

 

[conlejm]

Well a 50 gram tin that sells for $10 in the USA goes for $50 in Canada now, and there are 454 grams in a pound ... I'll buy 15 pounds now for $450 and it won't matter to me what happens to the price in the future. It isn't going to go down, that's for sure, and I have the money now. And it will age in my cellar. Win-win.

 

[woodsroad]

About five miles from my home sits the former residence of John Fries. A soldier in The Revolution, Fries in 1799 led the local resistance to a federal direct tax , which placed a levy on every pane of glass in a private home, and was tried and sentenced to death for his actions.
Fries home had no windows.
Although eventually pardoned by John Adams, his actions in support of individual liberty stand as a lasting testament to the importance that early Americans placed in personal freedoms, and the insight from experience that taught them that tyranny has no bounds.
When we accept tyranny, in any form, we are acquiescing to our own oppression, whether it occurs now, or is yet to transpire. This, then is not an issue about pipe tobacco, it is an issue of freedom, and whether we choose to preserve it or cede it to posterity.

 

[cobguy]

"Of all tyrannies a tyranny sincerely exercised for the good of its victims may be the most oppressive."
- C. S. Lewis

 

[brudnod]

I have to agree that shifting taxes is an odd practice and certainly not based in logic or [as with the potential health risks associated with cigarette smoking] scientific. But it got me to thinking about the relative expense of pipe smoking compared to say hard liquor drinking (you could certainly make the same comparison to wine or beer).
So here is the comparison: My favorite hard stuff [in bulk] a half gallon bottle of Dickel 12 year old sour mash bourbon at about $40.00 (including taxes but recently on sale at that price). The comparison is not bulk but rather the acclaimed Molto Dolce at (on sale admittedly recently as buy 2 get 1 free at P&C) at $6.10. $40 worth of Molto Dolce is about 10 ounces. Now I don't know about you but I get about 10 bowls from an ounce of pipe tobacco allowing for spillage and I smoke, at most, 2 pipes a day. At most I drink 3 ounces of bourbon (2 shot glasses) a day. So if I drink at that pace I have 21 days of drinking; and if I smoke at that pace I have 50 days of smoking. Both are about $40. More than twice as much smoking as drinking. And bulk pipe tobacco is MUCH cheaper.
I am not advocating a dramatic increase in taxation but good pipe tobacco is a pretty cheap pleasure as it goes. Your thoughts?

 

[ruscho]

As far as I am concerned it is just as bad as collecting a barbecue tax, taxing people with pools because of the danger of drowning kids, etc..

But we already do - you pay taxes on the BBQ sauce, the ribs (depending on your state), the gas for your grill, the grill itself, etc. Don't get me wrong, though, I don't want to pay more taxes

Well a 50 gram tin that sells for $10 in the USA goes for $50 in Canada now, and there are 454 grams in a pound

Which was kind of my point. Compared to Canada and EU, we pay nothing for pipe tobacco and it would take one hellofa tax to catch up to such levels. Of course, stocking up is the best policy, since tobacco prices will never go down.

 

[lonestar]

stocking up is the best policy

The best policy is no longer an option. The best policy would've been keeping a reign on our elected servants and never allowing them to usurp power they shouldn't have.

What is the best option now ? I don't know.

 

[leacha]

Since the author sees punitive taxes as a possible way to increase revenue and reduce tobacco consumption. I wonder how the author would feel if there was a "Road Safety Tax". If the author receives any moving violation than the yearly license plate renewal will have a $2400 "Safety Tax" added for each violation.
This would increase revenue and make the roads safer. Just a thought.

 

[andrew]

I'm also not so spooked by taxes, considering that right now you can get a pound of good tobacco for $30. Even if they tax the hell out of it and you have to pay $60, it's still very affordable.

60$ is wishful thinking, where I live a 50gm pouch of otc will cost between 35$-40$, if you want a premium brand you're looking at close to 50$. A pound will run you about 250$ at the minimum, but that was a few years ago, it would be well over 300$ now. In australia it's way more than that. Unless you can stop universal Healthcare from coming in, tobacco taxes are going to come and they'll come in at a huge increase.

 

[conlejm]

Compared to Canada and EU, we pay nothing for pipe tobacco and it would take one hellofa tax to catch up to such levels.

All it will take is for one of our illustrious politicians to point out that Canada has very high tobacco taxes and 16% of Canadian adults smoke. By comparison, the USA has relatively low tobacco taxes and 18.1% of American adults smoke. The 2.1% difference in smoking rate would be attributed to the increase in cost of tobacco products, and would equate to 5 or 6 million Americans quitting smoking (out of a population of 316 million Americans) if the USA had tobacco pricing commensurate with Canadian tobacco pricing. A three-fold or five-fold increase in the cost of tobacco, entirely due to taxation, would not only yield massive tax revenues on the remaining 16% of Americans still smoking, but would essentially "save" 5 or 6 million Americans from tobacco-related deaths, or illness.
I'm not saying I believe this, but we can make these statistics say whatever we want, and if I were a politician, I would make them say this very thing.

 

[woodsroad]

I'm in favor of a Pleasure Tax Credit.

Anything that you enjoy doing, just save the receipts, and it comes off the taxable income line at tax time.