In the fight to keep the RYO shops open I received a letter from Senator Herb Kohl who supported the amendment in the Transportation Bill stating that it will help close the budget gap and close a loophole in the SCHIP tax. Of course the latter part is an out and out lie. It changed no tax laws, NONE. People who rented the RYO machines payed all taxes on both the tubes and tobacco. As I reported earlier in my state just the state tax on the tobacco used in these machines is 71% of the wholesale price. So this is more of a matter of politicians catering to their lobbyist handlers then it has to do with tax loopholes.

It is not surprising that the same lobbyist that pushed for the PACT Act also pushed for the amendment to the Transportation bill.

There are even investigations into the misuse of taxpayer dollars being used in these lobbying efforts.

The U.S. House Energy and Commerce Committee last week sent a letter to Kathleen Sebelius, the Secretary of the U.S. Department of Health and Human Services (HHS), raising serious questions about the possible misuse of federal stimulus taxpayer dollars to lobby for higher sugar taxes, increased tobacco taxes, restrictions on restaurant zoning, setting restaurant standards, and changing relative prices of health and unhealthy food items. Under federal law, it is illegal to use funds appropriated by Congress to influence in any manner a member of Congress or an official of any government regarding any legislation, law, or policy.

This has not only taken place at the national level but has taken place at the state and local level.

DENVER (AP) – Auditors on Monday questioned whether Colorado health officials are following the law by giving money from tobacco taxes to help local initiatives barring smoking in public beyond what’s already prohibited by state law.

But this has been the case with all of the “Tobacco Control” laws and you see the same players involved in each of the laws.

The PACT Act which was sponsored by Senator Kohl had the same nefarious players.

Specific Organizations Supporting S.1147

For those unfamiliar with the PACT Act

Official Summary

3/31/2010–Public Law. (This measure has not been amended since it was reported to the Senate on November 19, 2009. The summary of that version is repeated here.) Prevent All Cigarette Trafficking Act of 2009 or PACT Act – Amends the Jenkins Act to revise provisions governing the collection of taxes on, and trafficking in, cigarettes and smokeless tobacco.

(Sec. 2)

Revises the definition of “cigarette” to include roll-your-own tobacco and to exclude cigars. Defines “delivery sale” to mean any sale of cigarettes or smokeless tobacco to a consumer ordered by telephone, the mails, or the Internet or other online service . Redefines “person” to include state, local, and Indian tribal governments. Redefines “use” to include the consumption, storage, handling, or disposal of smokeless tobacco, in addition to cigarettes.

Of course the final section of the Act is an out and out lie.

(Sec. 8)

Expresses the sense of Congress that this Act responds to the unique harms posed by online cigarette sales and does not create a precedent for the collection of state sales or use taxes by, or the validity of efforts to impose other types of taxes on, out-of-state entities that do not have a physical presence in the taxing state.

One only needs to look at the original intent of the Act to see this.

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

 

(a) Short Title- This Act may be cited as the ‘Prevent All Cigarette Trafficking Act of 2009’ or ‘PACT Act’.

 

(b) Findings- Congress finds that–

 

(1) the sale of illegal cigarettes and smokeless tobacco products significantly reduces Federal, State, and local government revenues, with Internet sales alone accounting for billions of dollars of lost Federal, State, and local tobacco tax revenue each year;

 

(2) Hezbollah, Hamas, al Qaeda, and other terrorist organizations have profited from trafficking in illegal cigarettes or counterfeit cigarette tax stamps;

 

(3) terrorist involvement in illicit cigarette trafficking will continue to grow because of the large profits such organizations can earn;

 

(4) the sale of illegal cigarettes and smokeless tobacco over the Internet, and through mail, fax, or phone orders, makes it cheaper and easier for children to obtain tobacco products;

 

(5) the majority of Internet and other remote sales of cigarettes and smokeless tobacco are being made without adequate precautions to protect against sales to children, without the payment of applicable taxes, and without complying with the nominal registration and reporting requirements in existing Federal law;

 

(6) unfair competition from illegal sales of cigarettes and smokeless tobacco is taking billions of dollars of sales away from law-abiding retailers throughout the United States;

 

(7) with rising State and local tobacco tax rates, the incentives for the illegal sale of cigarettes and smokeless tobacco have increased;

 

(8) the number of active tobacco investigations being conducted by the Bureau of Alcohol, Tobacco, Firearms, and Explosives rose to 452 in 2005;

 

(9) the number of Internet vendors in the United States and in foreign countries that sell cigarettes and smokeless tobacco to buyers in the United States increased from only about 40 in 2000 to more than 500 in 2005; and

 

(10) the intrastate sale of illegal cigarettes and smokeless tobacco over the Internet has a substantial effect on interstate commerce.CommentsPermalink

 

(c) Purposes- It is the purpose of this Act to–

 

(1) require Internet and other remote sellers of cigarettes and smokeless tobacco to comply with the same laws that apply to law-abiding tobacco retailers;

 

(2) create strong disincentives to illegal smuggling of tobacco products;

 

(3) provide government enforcement officials with more effective enforcement tools to combat tobacco smuggling;

 

(4) make it more difficult for cigarette and smokeless tobacco traffickers to engage in and profit from their illegal activities;

 

(5) increase collections of Federal, State, and local excise taxes on cigarettes and smokeless tobacco; and

 

(6) prevent and reduce youth access to inexpensive cigarettes and smokeless tobacco through illegal Internet or contraband sales.

Of course the act played on the fears of terrorism and used the fact that terrorist engaged it illegal cigarette trafficking but the act only put legal internet and mail order businesses out of business and did nothing to address the black market.  In effect they protected the interest of states that imposed abusive taxes on its citizens and protected the interest of “Big Tobacco”,”Big Pharma” and the National Association of Convenience Stores.

This abuse of smokers was exacerbated by the abusive SCHIP tax imposed on smokers.

The U.S. Senate approved a measure late Thursday to raise tobacco taxes and expand the State Children’s Health Insurance Program (Schip) to cover more uninsured children.

U.S. Sens. John McCain and Jon Kyl of Arizona joined 32 other Republicans in voting against the bill. They want the program to focus on uninsured children of the working poor, while the Democratic plan includes more lower- and middle-class children without health coverage.

The $33 billion bill will raise federal cigarette taxes from 39 cents to $1 per pack. It also raises federal levies on cigars, rolling papers and other tobacco-related products.

The plan already had been approved by the U.S. House and is backed by the Barack Obama administration.

The following chart shows exactly the abusive increase in tax imposed on the smokers.

Product Federal Tax Rates Through March 31, 2009 Federal Tax Rates on April 1, 2009
Cigarettes 39¢ per pack $1.0066 per pack (Rounded to $1.01/pack)
Large Cigars 20.719% of manufacturer’s price; cap of 4.875¢/cigar 52.75% of manufacturer’s price; cap of 40.26 cents per cigar
Little Cigars 4¢ per pack $1.0066 per pack (Rounded to $1.01/pack)
Pipe Tobacco $1.0969 per pound $2.8311 per pound
Chewing Tobacco 19.5¢ per pound 50.33¢ per pound
Snuff 58.5¢ per pound $1.51 per pound
Roll Your Own; Cigar Wrappers $1.0969 per pound $24.78 per pound
Cigarette Paper 1.22¢ per 50 papers 3.15¢ per 50 papers
Cigarette Tubes 2.44¢ per 50 tubes 6.30¢ per 50 tubes

As you can see above the tax on RYO tobacco went up 2259% , the tax on tubes went up 258%.  This draconian tax forced poor smokers to resort to using pipe tobacco, yes that tobacco went up drastically but wound up being a lower cost alternative as it only went up 258%.

Here in Wisconsin this abuse of smokers was exacerbated by Comrade Doyle who not only ramrodded the smoking ban in but imposed abusive taxes on smokers himself.  From the Wisconsin Department of Revenue.

Tax Type Prior to January 1, 2008 January 1, 2008 to August 31, 2009 September 1, 2009 and thereafter
Tobacco Products 50% of manufacturer’s established list price to distributors 71% of manufacturer’s established list price to distributors
Moist Snuff $1.31 per ounce 100% of manufacturer’s established list price to distributors
Cigars Lesser of 50% of manufacturer’s established list price to distributors or $0.50 per cigar Lesser of 71% of manufacturer’s established list price to distributors or $0.50 per cigar

The abusive taxes has forced cigarette smokers to seek alternatives.

From 2000 to 2011, total cigarette consumption declined from 435.6 billion to 292.8 billion, a 32.8% decrease (Table 1). Per capita cigarette consumption declined from 2,076 in 2000 to 1,232 in 2011, a 40.7% decrease. Conversely, total consumption of noncigarette combustible products increased from 15.2 billion cigarette equivalents in 2000 to 33.8 billion in 2011, a 123.1% increase, and per capita consumption increased from 72 in 2000 to 142 in 2011, a 96.9% increase. Total consumption of all combustible tobacco decreased from 450.7 billion cigarette equivalents to 326.6, a 27.5% decrease from 2000 to 2011, and per capita consumption of all combustible tobacco products declined from 2,148 to 1,374, a 36.0% decrease.

Consumption of loose tobacco (i.e., roll-your-own cigarette tobacco and pipe tobacco) changed substantially from 2000 to 2011. Roll-your-own cigarette equivalent consumption decreased by 56.3%, whereas pipe tobacco consumption increased by 482.1% (Table 2). The largest changes occurred from 2008 to 2011, when roll-your-own consumption decreased from 10.7 billion to 2.6 billion (a 75.7% decrease), whereas pipe tobacco consumption increased from 2.6 billion to 17.5 billion (a 573.1% increase).

Substantial changes also were observed in consumption of small cigars† and large cigars (Figure 1). From 2000 to 2011, consumption of small cigars decreased 65.0%, whereas large cigar consumption increased 233.1% (Table 2). The largest changes occurred from 2008 to 2011, when small cigar consumption decreased from 5.9 billion to 0.8 billion (an 86.4% decrease), whereas large cigar consumption increased from 5.7 billion to 12.9 billion (a 126.3% increase).

Annual cigarette consumption declined each year during 2000–2011, including a 2.6% decrease from 2010 to 2011, but total consumption of combustible tobacco decreased only 0.8% from 2010 to 2011, in part because of the effect of continued increases in the consumption of noncigarette combustible tobacco products (Figure 2). From 2000 to 2011, the percentage of total combustible tobacco consumption composed of loose tobacco and cigars increased from 3.4% (15.2 billion cigarette equivalents out of 450.7 billion) to 10.4% (33.8 billion of 326.6 billion).

Additional Tax Hikes Likely

Kristina Rasmussen, director of government affairs for the National Taxpayers Union, said, “We are absolutely opposed to this massive tax increase, which would come along with a massive increase in government spending. The planned increase in the tobacco tax would be expected to pay for a huge increase in government spending. But the use of tobacco products is going down, so smokers and nonsmokers alike will pay for those spending increases through other increased taxes.”

A recent study by the Mackinac Center for Public Policy supports Rasmussen’s point. “Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review” reported high cigarette taxes are leading to an increase in cigarette smuggling. That problem, combined with reduced levels of smoking as smokers try to cut costs, consistently results in less cigarette tax revenue than projected.

In New Jersey (where the smuggling rate exceeds 40 percent), cigarette revenue has not merely fallen short of projections. The amount of revenue collected has fallen, after four tax hikes in the past seven years have taken the tax to $2.58 per pack.

Heartland also points to why these abusive taxes are favorable to politicians.

Popular with Lawmakers

With a national smoking rate of just under 20 percent, it is no wonder that raising cigarette taxes is popular with lawmakers, says John Nothdurft, a legislative specialist at The Heartland Institute. The “tax thee, but not me” approach makes raising cigarette and other “sin” taxes appealing to politicians who want more revenue without angering most taxpayers.

However, “This concentrates the tax on a minority of people who can least afford it and who already pay more than their fair share,” Nothdurft said.

“Cigarette taxes are highly regressive and place an undue burden on the poor,” Nothdurft continued. “Studies have shown that tobacco use is more common among low-income Americans than among those with higher incomes. Cigarette taxes take a bigger share of the income of a low-income person than of a high-income person, and the low-income person pays more in cigarette taxes in absolute terms, as well.”

Analysts note state and local taxes on tobacco products are already past the point on the Laffer Curve where raising rates reduces revenues. Named for economist Arthur Laffer, the curve shows at a certain point a high tax rate will actually decrease revenue because the tax becomes so punishing that people avoid the taxed item or activity.

There is plenty of proof that using taxation to enact “nanny statism” is a dismal failure and a regressive tax on the poor.

ALBANY — Low-income smokers in New York spend 25 percent of their income on cigarettes, according to a new study, which led advocates for smokers’ rights to say it proved high taxes were regressive and ineffective. . . .

Audrey Silk of Citizens Lobbying Against Smoker Harassment, an advocacy group, said the study showed that cigarette taxes were punitive and “undeniably regressive.”

“It busts their theory that high taxes equal submission to their coercive measure,” Ms. Silk said. She criticized those in government who opposed smoking and increased related taxes.

The smuggling that has taken place as a result of these draconian taxes is well documented.

Here is a question for lawmakers to consider before casting their votes to raise the federal cigarette tax by 61 cents per pack: How can the number of smokers have increased over the last decade while the number of tax-paid cigarettes has fallen sharply?

The answer is that Americans are smoking millions of bootlegged cigarettes.

Consider the case of Jorge Abraham. He’s not exactly the stereotypical border-crossing smuggler: a quadriplegic living with his parents in El Paso. But prosecutors called him “extremely resourceful” when he smuggled millions of packs of cigarettes into the U.S. from China and distributed them nationwide. In 2005 he pled guilty and went to prison.

What drove Mr. Abraham, and what encourages others like him, is the simple arithmetic of cigarette tax evasion. Today a pack of brand name cigarettes can be had for as little as $1.25 in low-tax jurisdictions around the world. Due mostly to federal, state and local taxes, the U.S. price for that same pack reaches $7.50. When Jorge Abraham or any other smuggler moves just one shipping container containing 200,000 packs into the U.S., the profit potential is a cool $1 million.

As in other black markets—such as that for illicit drugs—such enormous profits lure many violent individuals into the trade. A recent string of homicides and shootings in New York City described in a Tax Foundation paper on cigarette tax evasion illustrates just how severe these problems can be.

Tax evasion is by no means the only crime that will rise in the wake of a much higher federal cigarette tax. Cigarettes are often the product of choice for thieves since the development of an active black market creates a place where they can quickly be sold for cash. Across the country cigarette tax hikes have been accompanied bytobacco-related crime waves that threaten truck drivers and retail clerks and other innocent people along the cigarette distribution chain.

Here’s more.

The authors’ review of Michigan’s, New Jersey’s and California’s cigarette smuggling experiences suggest that cigarette smugglers can realize large profits: tens of thousands of dollars for a single vanload of cigarettes, and hundreds of thousands of dollars for a single truckload. These sums represent a loss in estimated tax revenues to a state’s treasury, but they have produced other unintended consequences, including a variety of crimes:

These societal costs are frequently borne by innocent people. This, together with the authors’ cigarette smuggling estimates, suggests that state policymakers should reassess the value of cigarette taxes as a revenue and public health tool. States with high cigarette taxes, for instance, may want to consider reducing those taxes to reduce the smuggling incentive and the attendant ancillary crime. States with lower cigarette tax rates should be cautious about increasing the taxes, especially with an apparent growth in international smuggling. State policymakers should also recall that cigarette taxes are regressive, and that cigarette tax revenues are best spent on programs that mitigate the cost of smoking, not on general programs that would be more properly financed by the general taxpayer.

Just this week this was reported in Kansas City

In a case that started in the aisles of a Kansas City convenience store, federal authorities say they have uncovered a nationwide conspiracy to illegally traffic tens of millions of dollars worth of cigarettes.

Several area residents allegedly were at the hub of the enterprise. Although no criminal charges have been filed, federal prosecutors this year seized more than $2.6 million from individuals and their bank accounts as part of the ongoing investigation.

Prosecutors are pursuing the forfeiture of the money, a $550,000 airplane and four semi trucks that authorities contend were purchased with illegally obtained proceeds. A Lee’s Summit man is among those trying to get some of the money back.

The scope of the alleged conspiracy is outlined in a 101-page civil complaint that prosecutors filed in U.S. District Court in Kansas City. . .

Trafficking in contraband cigarettes occurs throughout the country, said Special Agent Trista Frederick, a spokeswoman for the ATF in Kansas City. Because of the underground nature of the business, its scope is hard to quantify.

“It can be quite lucrative,” she said.

In one California case she investigated, state revenue officials estimated that over an 18-month period the state was deprived of about $17 million in tax revenue, Frederick said.

So while lawmakers attempt to use punitive taxes as a means to enact social change and install “nanny statist” laws it is clear that the outcome is far from the outcome that they intended.  It not only does not produce their desired outcomes it promotes criminal activity which in their minds justifies even more violations on civil liberties and more punitive laws.

“That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create….”

Chief Justice John Marshall

Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their consciences.  C.S. Lewis

The fatal attraction of government is that it allows busybodies to impose decisions on others without paying any price themselves. That enables them to act as if there were no price, even when there are ruinous prices — paid by others.  Millions of people’s lives are made worse in innumerable ways, in order that a relative handful of busybodies can feel important and superior. Thomas Sowell

For more information on Tobacco Control tactics click here.

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