February 20,2015

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Wyden Lauds New Recommendations to Combat Tobacco Tax Avoidance and Evasion

Ranking Democrat Says National Academy of Sciences Report Highlights Need to Improve Federal Tobacco Enforcement

WASHINGTON –Today, Senate Finance Committee Ranking Member Ron Wyden, D-Ore., highlighted findings from a new report by the National Academy of Sciences detailing how the U.S. is falling behind other nations, including Spain, the United Kingdom, Canada, and the European Union, in combating illicit tobacco sales and tobacco tax abuse.

The new report estimated that the share of illicit tobacco sales as part of the total United States tobacco market is between 8.5 and 21 percent, equal to between $2.95 billion and $6.92 billion in lost state and local tax revenue. The report also details continued abuse of federal excise tax laws through mislabeling of tobacco products, which the U.S. Government Accountability Office estimates has resulted in between $2.6 and 3.7 billion in lost federal revenues since 2009.

“The U.S. is falling behind on tobacco tax laws and enforcement while costing federal, state and local governments billions in vital revenue,” Wyden said. “Ineffective enforcement of tobacco laws ultimately derails the positive effects tobacco taxes have on keeping cigarettes out of children’s hands and ending the smoking epidemic.”

The report found that federal tobacco enforcement is governed by a “complicated web of laws” with enforcement jurisdiction spread across four different agencies including the Alcohol and Tobacco Tax and Trade Bureau (TTB) in the Department of Treasury, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in the U.S. Department of Justice (DOJ), Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP) in the U.S. Department of Homeland Security (DHS). 

In addition, the report highlighted the challenges of coordinating the various agencies and jurisdictions, and found an overall lack of emphasis on tobacco enforcement among stakeholders. In one instance, the researchers found the number of tobacco investigations initiated by ATF declined from 100 in 2011 to just 11 in 2013. Meanwhile, illicit tobacco sales have nearly tripled over the past two decades.

The report also highlighted the uncertain public health consequences of e-cigarettes, and the inconsistent regulation and taxation of electronic nicotine delivery devices both in the U.S. and internationally.  Under federal law, e-cigarettes are not currently subject to federal tobacco taxes, nor are subject to limitations on sales to minors, marketing, ingredients, or flavoring.

Finally, the report identified a number of ways to improve tobacco tax enforcement and modernize U.S. tobacco enforcement including better communication and information sharing among agencies and jurisdictions, dedication of tobacco-specific enforcement efforts, harmonization of tax rates, and implementing tracking and tracing programs. The report found that these initiatives have been shown to significantly reduce illicit tobacco sales and tobacco tax abuse in other countries.

Last year Senator Wyden chaired a Finance Committee hearing where he called on the Treasury Department to close tobacco tax loopholes that cost the federal government billions of dollars in taxes and undermine public health initiatives.

The full report can be found here.