A 2009 law that raised federal taxes on tobacco products to discourage smoking triggered a market shift to pipe tobacco and large cigars, costing the US Treasury billions in lost revenue, according to a GAO report obtained by NBC News. In some instances, it took little more than a label change to qualify for the lower tax rate, it said.
The Government Accountability Office study, which was the focus of a congressional hearing on Tuesday, found that Children’s Health Insurance Program Reauthorization Act (CHIPRA) drove manufacturers and price-conscious consumers to gravitate to pipe tobacco and so-called large cigars because it taxed them at lower rates than cigarettes, small cigars and roll-your-own tobacco.
“This is a classic case of tax evasion that’s being fueled by a lapse in good government,” said Senate Finance Committee Chairman Ron Wyden, D-Ore, who chaired Tuesday’s hearing. “As a result, the country has taken a hit worth billions of dollars, and children and teens have easier access to tobacco. It’s time for the Senate Finance Committee to look at solutions to close this loophole for good.”
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