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A tax on tobacco products–intended to provide children with health insurance–brought in less money than expected last year. A loophole is to blame.
Tobacco companies began marketing loose rolling tobacco as pipe tobacco, and therefore paying the far lower tax rate for the latter ($2.83 vs. $24.78 per pound). In addition, production of pipe tobacco products has ramped up unusually.
The Obama administration believes that over $250 million in predicted funding for kids’ health insurance plans, such as SCHIP, was lost due to the industry changes. A bill is currently pending in Congress to make the tax rates equal has received little attention thus far.