Southern Bread

If you enjoy a good pipe, as I do, you need to know that Congress has it’s eye on you. H.R. 4439, which was introduced in January, aims to close the “loophole” between cigarette and pipe tobacco taxes. The effect would be to raise the tax on pipe tobacco approximately 775% from $2.83 per pound to $24.78 per pound.

It’s hard to know, at first, whether a bill like this is a “juicer” bill, a help-my-big-corporate-donor bill or just stupidity. I always lean toward the first until proven otherwise, so that’s going to be my take at the moment. I won’t accept stupidity as an answer unless they prove it to me. What does strike me as humorous though, is all of the outcry in the blogosphere about this bill. People are just simply going crazy about it. But you can tell that they probably could care less about the two thousand other industries that are being just as taxed. People always get up in arms when government comes knocking on their door, but don’t seem to care when he knocks on the neighbor’s.

The justification for the bill goes as follows:

Mr. Obama and Congress increased taxes on tobacco products earlier this year…but tobacco for roll-your-own cigarettes saw a disproportionate leap, from $1.10 to $24.78 per pound.

But tobacco companies quickly adapted. The Associated Press found that as soon as the tax was on the books, companies all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It’s still destined to be rolled and smoked, but it’s taxed at barely a tenth the rate, $2.83 per pound.

The tax implications could be huge. As much as $32 million a month could be lost in taxes if the sudden spike in pipe tobacco is just cigarette tobacco in disguise.

–AP

So, the AP estimates that the government is losing $32 million per month on tobacco taxes as a result of pipe tobacco being taxed at the lower rate. This is the “loophole.” But, surely by now we all know that it’s never that easy. Increasing the tax on pipe tobacco up to parity with other tobaccos will decimate that industry, such that the realized tax revenue will be nowhere near $32 million. They’ll be lucky to get half of that. And, everyone involved knows this. If you are thinking something along the lines of “don’t they realize what it will do to X industry?!” Of course they do. Don’t kid yourself by pretending that politicians are ignorant of the consequences of proposed legislation. Don’t be this guy:

“Many times our government passes things without first taking an extra few days to say, ‘What are the unintended consequences?”‘ Altman said. “That’s what happened here.”

–AP

Now, don’t get me wrong. I’m not saying that government policies are targeted, fully thought out and all of the consequences are intended. I’m not saying that at all. But, specific legislation such as this is always targeted toward producing a particular result. In this case, the most logical intent of the bill is probably the same as it always is: to either put smaller competition out of business or just “juice” the industry for campaign donations. It’s almost always one of those two things.

The bottom line when analyzing a proposed bill that would potentially decimate a certain industry is to make sure you don’t fall into the trap of thinking it’s unintended. No, no. It’s always intentional. Someone is benefiting from it. You just have to find out who.