Sen. Durbin’s Bill to Close Tobacco Tax Loopholes Will Improve Health and Increase Federal Revenues

WASHINGTON, D.C. – The Campaign for Tobacco-Free Kids strongly supports the legislation introduced this week by U.S. Sen. Richard Durbin (D-IL) to close loopholes and equalize tax rates on all tobacco products. This bill will reduce tobacco use, especially among youth, and increase federal revenues. Since 2009, unequal tax rates and tax loopholes have kept some tobacco products taxed at lower rates than cigarettes, making them more affordable for youth and creating incentives for tax avoidance.

The Tobacco Tax Equity Act proposes to tax all tobacco products – including pipe tobacco, cigars, smokeless tobacco and tobacco products not currently taxed under the federal tax code – at similar rates as cigarettes. We applaud Sen. Durbin for taking action to help the government recover lost tax revenue while improving health and saving lives. Sens. Sherrod Brown (D-OH), Jack Reed (D-RI), Richard Blumenthal (D-CT), Edward Markey (D-MA) and Al Franken (D-MN) joined Sen. Durbin in introducing the legislation.

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. Creating a more equitable tax system, without loopholes, will prevent young people from starting to use tobacco products and help current users quit.

The current system for taxing tobacco products is neither simple nor equitable. Large cigars, smokeless tobacco and pipe tobacco are taxed at lower rates than cigarettes. These disparities have created opportunities for tobacco manufacturers to change the way they make or label their products so that they qualify for lower tax rates. In particular, roll-your-own tobacco has falsely been labeled as pipe tobacco, and some cigarette and small cigar manufacturers have modified their products so that they can be considered large cigars.

These loopholes allow these products to remain on the market at lower prices, discouraging tobacco users from quitting and encouraging youth to start using them. And the inequities in the tobacco tax system are costly: the Government Accountability Office estimates that, from April 2009 to February 2014, federal revenue losses due to these loopholes range from $2.6 billion to $3.7 billion.

Tobacco use remains the leading cause of preventable death in the United States, killing more than 480,000 Americans each year and costing $170 billion in health care expenditures annually. Sen. Durbin and his colleagues have taken an important step to reduce tobacco’s terrible toll on our nation.