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Study: Tobacco Taxes Costs U.S. Billions

Tobacco taxes have been credited for helping reduce the number of cigarette smokers, especially among young people.

That's good from a health perspective.

But from a financial standpoint, the tobacco tax hikes have cost Uncle Sam billions, according to a new report from the Government Accountability Office, or GAO.

The GAO estimates that between April 2009 and February 2014, the U.S. Treasury lost between $2.6 billion and $3.7 billion because of the lower taxes enacted in 2009 as part of the Children's Health Insurance Program Reauthorization Act, or CHIPRA.

Fewer smokers, however, weren't the major reason for the lost tax money.
Different tobacco tax rates

The GAO, which discussed its report at a Senate Finance Committee hearing July 29, says the fiscal problem is due to the disparity in various smoking product taxes.

CHIPRA raised tax rates on all types of tobacco, notes the GAO, but the increase was smaller for pipe tobacco and large cigars. That not only encourages smokers to buy the cheaper products, but the GAO investigation also found that the taxes prompted some tobacco companies to shift production to the lower-taxed tobacco.

"Each of the three tobacco manufacturers that agreed to speak with us explained that their companies switched from selling higher-taxed roll-your-own tobacco to lower-taxed pipe tobacco to stay competitive," according to the congressional watchdog agency's report.

Annual sales of domestic and imported pipe tobacco increased from about 5.2 million pounds before CHIPRA to 43.7 million pounds, says the GAO. Meanwhile, sales of domestic and imported roll-your-own tobacco declined after the law's enactment from about 21.3 million pounds to 3.8 million pounds.

Read more: http://www.bankrate.com/financing/taxes/tobacco-taxes-cost-u...
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