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Tobacco Control Accomplishment and Tobacco Tax Parity Act

Floor Speech

Location: Washington, DC

Mr. DURBIN. Mr. President, last week I was joined by Senators LAUTENBERG and BLUMENTHAL to introduce the Tobacco Tax Parity Act, a bill aimed at closing loopholes in how tobacco products are taxed and reducing the incidence of tobacco use.

It wasn't that long ago when it was common to smoke in offices, airplanes, elevators or even here in congressional hearings. We have made progress since the landmark 1964 Surgeon General's Report showing the negative effects of smoking on health, but there are plenty of signs that the fight continues to protect future generations from suffering the terrible effects of tobacco.

According to a Surgeon General's Report issued in March 2012, tobacco use among youth is a ``pediatric epidemic'' and is the No. 1 cause of preventable and premature death in this country. Every year, tobacco products account for 443,000--or 1 out of 5--deaths. The report also found that every day, 1,000 young people become new regular smokers and, of these new smokers, one-third will eventually die from tobacco-related causes.

While our Nation pays the physical and financial burden of tobacco use through $96 billion in annual medical costs and $97 billion in lost productivity due to premature death, tobacco companies invent new ways to generate profits and entice young people to pick up this deadly habit.

In 2009, the Children's Health Insurance Program Reauthorization Act increased the Federal tax rate on cigarettes and set the tax rate for small cigars and roll-your-own cigarettes at the same level as cigarettes. Cigars, smokeless tobacco, pipe tobacco, and nicotine candies, however, remain at dramatically lower tax rates than cigarettes making them a cheap source of tobacco, particularly among young people. While cigarettes, roll-your-own, and little cigars are taxed about $1 for a pack of 20 cigarettes, pipe tobacco is only taxed 11 cents for what adds up to 20 cigarettes, a pouch of chewing tobacco is only taxed 9 cents, and a 12-pack can of nicotine tablets or lozenges is taxed less than 1 cent. Not surprisingly, as the tax for cigarettes has increased, cigarette sales dropped and the sales of undertaxed tobacco products went up.

This difference in tax rates doesn't make sense, and we are already seeing tobacco manufacturers abusing them by changing the labels on their products to avoid paying the higher tax. For instance, to avoid paying the higher tax on loose roll-your-own tobacco, some manufacturers simply change the label on that product to pipe tobacco. There are stores popping up across the country, including in Illinois, that allow people to buy undertaxed pipe tobacco or cigarette tobacco intentionally mislabeled as pipe tobacco and rent time on a cigarette making machine where customers can make 200 cigarettes in 8 minutes and not pay the $10 Federal cigarette tax.

A report released by the Government Accountability Office last year found that the difference in tax rates creates opportunities for tax avoidance and encourages consumers to use products with a lower tax. For instance, the monthly sales of pipe tobacco in September 2011 increased by over 1,200 percent compared to January 2009, while the monthly sales for roll-your-own tobacco dropped 600 percent. Over $1.4 billion in State and Federal revenue has already been lost due to manufacturers relabeling and selling roll-your-own tobacco as pipe tobacco.

The Tobacco Tax Equity Act will end the exploitation of these tax loopholes by taxing all tobacco products at the same level as cigarettes. Through this legislation roll-your-own tobacco and pipe tobacco would be taxed at the same level of $1 for 20 cigarettes worth of tobacco. It would also raise the tax on a package of smokeless tobacco from 11 cents or less to $1--the same as a packet of cigarettes. The same goes for cigars, which are currently taxed no more than 46 cents per a cigar. As new tobacco products come onto the market, this bill ensures that any product defined as a tobacco product by the FDA is taxed at a level equivalent with cigarettes.

According to an estimate by the Joint Committee on Taxation, closing these loopholes will generate $3.6 billion over the next 10 years. But closing the loophole will not only generate much needed revenue and prevent manufacturers from gaming the system, it will protect children and teens from picking up this dangerous habit. I urge my colleagues to support this important legislation.

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