SUN EDITORIAL:

Pipe dream posing problems

Tax avoidance scheme by small tobacco companies is legal but worrisome

Saturday, Nov. 21, 2009 | 2:07 a.m.

The federal government should have known how small, independent tobacco companies would react when it disproportionately increased the tax on their primary product.

These companies specialize in making tobacco for roll-your-own cigarettes, whose sales had been growing because they are cheaper than packaged cigarettes. But Congress and President Barack Obama this year raised taxes on all tobacco products in order to expand a program that subsidizes children’s health insurance.

Hardest hit were the companies in the roll-your-own industry. The tax on their tobacco went from $1.10 a pound to $24.78 a pound. Companies in this niche market saw their revenue nosedive.

Many responded by turning to what the Associated Press is calling a “marketing twist” — instead of paying the enormous increase, they are simply marketing their primary product as pipe tobacco, which is taxed at $2.83 a pound.

Naturally, this new pipe tobacco came on the market under the same brand names as the old roll-your-own tobacco. And of course, it was subtly advertised as suitable for both pipes and roll-your-own cigarettes. This marketing twist is legal because there are no government rules on how pipe tobacco must be formulated.

The Associated Press reported that the federal treasury could be shorted hundreds of millions of dollars a year if the labeling switcheroo stands. And there is another problem, as worrisome as the loss in taxes. Flavored cigarettes, which attract children, are banned by the Food and Drug Administration. But that ban does not extend to pipe tobacco. This opens the possibility that so-called pipe tobacco could soon be on store shelves in various flavors, an incentive for children to roll their own.

“This is a direct challenge to the federal government,” Matthew Myers, president of the Campaign for Tobacco Free Kids, told the AP.

Certainly the government should address this unforeseen strategy by the independent tobacco companies. Perhaps the tax on roll-your-own tobacco could be reduced somewhat, as it is inordinate. And without question, “pipe tobacco” needs a clear definition.

Discussion: 8 comments so far…

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy.

By Future

Nov. 21, 2009

2:35 a.m.

Suggest removal

"The tax on their tobacco went from $1.10 a pound to $24.78 a pound....

"This is a direct challenge to the federal government," Matthew Myers said. WOW

What kind of an inept law did Harry Reid write?

Why would anyone put such a punishing gross tax on something any not expect that another path would be taken
By SgtRock

Nov. 21, 2009

3:08 a.m.

Suggest removal

The higher the taxes go the greater the tax avoidance occurs.

This is obvious.

The mob loves high taxes on goods. It creates a boom in the black market.

Just a FYI.....Titus raised taxes on poor and low income people so that middle class can get free health insurance for their children.

Waz up with that?
By Burrittobandit2

Nov. 21, 2009

3:32 a.m.

Suggest removal

I'm gonna try smoking a pipe. No not a crack pipe. Might make me look smarter with a martini, er I mean a Bud Light.
By POWERPLAY

Nov. 21, 2009

7:18 a.m.

Suggest removal

Sgt Rock says Waz up with that? Well thats easy Rep. Titus knowing that poor and low income people will always vote Democrat' She is now trolling for more votes from the middle class.
By neiman1

Nov. 21, 2009

8:41 a.m.

Suggest removal

Flavoring was not removed from all cigarettes. The federal government still allows menthol. Why?
By KillerB

Nov. 21, 2009

9:54 a.m.

Suggest removal

"The Associated Press reported that the federal treasury could be shorted hundreds of millions of dollars a year if the labeling switcheroo stands."

Since when is "the federal treasury" entitled to profit at the expense of healthy interstate commerce (which = jobs)? Just evidence of more incredibly stupid lawmaking and why jobs are fleeing U.S. jurisdiction due to predatory regulation like this. Taxation is one thing, but hiking just the federal tax on tobacco sales times 22.53 comes down to trying to drive these legitimate vendors out of business. And that translates to more job losses somewhere.

One thing more this article missed is Washington state went one better on the feds -- buying tobacco online recently became a FELONY.

"This is a direct challenge to the federal government," Matthew Myers, president of the Campaign for Tobacco Free Kids, told the AP."

I hope so. Mr. Myers is just one more "it's for the kids!" huckster.

SgtRock -- for once you're actually relevant. Congrats on that. Just switch "herd" for "mob" and we're almost on the same page here.
By Rhooster

Nov. 21, 2009

12:32 p.m.

Suggest removal

Menthol is the only nutrition that cigarette smokers get.
By fosimmons

Nov. 21, 2009

1:53 p.m.

Suggest removal

Fellow Idiots and Simpletons: If tobacco is such a money crop why can't the government cash in on it too? It can't hurt. Don't we need improvements in our Medicare and our Social Security payments or do we just sit here and sip empty vodka? Certainly, CriminalBush, the taxcutter for the rich and famous would have something to say about it back when he did drugs, smoked and lived drunk and went AWOL. This time around things are different. I don't mind paying more for my smokes. At least I know what's going to do me in. Do you? Thank You.