WASHINGTON, D.C. — New data from the U.S. Government Accountability Office (GAO) shows that smokers are responding to the 2009 increase in federal taxes on cigarettes and roll-your-own (RYO) tobacco by purchasing more pipe tobacco and large cigars, which are taxed at a lower rate, according to a USA Today report.
Monthly sales of pipe tobacco rose from 240,000 pounds in January 2009 to more than 3 million pounds in September 2011, while monthly sales of large cigars rose from 411 million pounds to more than 1 billion pounds. Pipe tobacco has become especially attractive to smokers who visit local stores with RYO cigarette machines, where they can make and purchase cheaper cartons of cigarettes.
Additionally, some manufacturers of small cigars increased the weight of their products so that they qualified as large cigars, therefore receiving the lower tax rate while costing much less than a traditional premium large cigar.
The change in spending patterns cost the federal government $615 million to $1.1 billion in uncollected tax revenue from April 2009 to September 2011, reported the GAO. It did not estimate how much money individual states lost.
“That’s real money and a tax avoidance scheme Congress ought to be interested in stopping,” said Gregg Haifley, associate director of federal relations at the American Cancer Society’s Cancer Action Network. “It’s also counterproductive for the public health benefit of tobacco taxes.”
The RYO loophole has come under fire in multiple states, several of which are closing it through legislation.
In a response to the GAO’s report, the U.S. Treasury Department noted that the losses “are not actual losses of revenues, but rather your estimates of the revenue increases if Congress were to change the law to eliminate the disparities.”
Sen. Tom Harkin (D-Iowa) and 15 co-sponsors have introduced federal legislation that would eliminate the disparities, as the GAO recommends, but the bill remains in the Senate Finance Committee, according to the report.