Tobacco Tax Ambiguity in Health Insurance Program Costs $250m to Government

According to the public health officials, a tobacco tax ambiguity in President Barack Obama's children's health insurance program has costed the Government more than $250 million in its first year. Many companies were able to avoid huge tax increases on loose rolling tobacco, with the help of this loophole, as they relabeled their product as pipe tobacco. This led companies pay $2.83 per pound, instead of the $24.78 per pound levied on rolling tobacco.

It was a costly detail in the way the Government pays for health insurance for poor children. The tobacco companies increased production of pipe tobacco to record levels and condensed the production of roll-your-own tobacco.

Daniel Morris first identified the loophole late last year. He tracks tobacco production data at the Oregon Department of Health. The Associated Press highlighted the millions being misplaced, in the month of November, but was still doubtful that whether that was a short-term change in production or a long-term tendency.

As a matter of fact, the trend has not changed; the companies produced more than 2 million pounds of pipe tobacco in the month of March.

Morris estimated that more than $250 million were lost by the U. S. in tax revenue in the first year of the law. Morris said, "The magnitude was larger than I initially expected. I was expecting that once the loophole was identified, there'd be action to fix it".