Loophole In CHIP Costs Feds Millions In Lost Revenue

The Associated Press: "A tobacco tax loophole in President Barack Obama's children's health insurance program cost the government more than $250 million in its first year, public health officials say. The loophole allowed companies to avoid huge tax increases on loose rolling tobacco by relabeling their product as pipe tobacco. The simple marketing twist lets companies pay $2.83 per pound, rather than the $24.78 per pound levied on rolling tobacco. That proved an expensive technicality in the way the government pays for health insurance for poor children."

In March, one year after the change, "companies produced more than 2 million pounds of pipe tobacco. It was a record month for an industry that steadily produced about 270,000 pounds a month before the tax changed…. The Obama administration said last year it would release new rules for differentiating roll-your-own tobacco from pipe tobacco, but it has yet to do so" (Apuzzo, 6/2).

Des Moines Register: Meanwhile, "[t]he Iowa Department of Public Health announced Tuesday that as of June 30, it would stop giving out free samples of the nicotine patches and gum to people who called the Quitline Iowa program. Department officials said they had to make the change because of state budget cuts. … The cigarette makers agreed in 1998 to pay up to $2 billion to Iowa over 25 years. At the time, state officials said the settlement would help cut tobacco use and treat people harmed by smoking. By 2005, the state had sold off the rights to 78 percent of those payments for about $500 million in immediate cash. Almost all of that money has been spent" (Leys, 6/2).

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