A Tobacco Tax End Run

It was a hefty tobacco tax hike last spring. In March the price of a pack of cigarettes went up 62-cents on average, but for some, that wasn’t the worst of it.

About 16% of Americans still smoke, but in Texas it's 18%. And for the over 3-million Texans who still do, pipe tobacco, cigars, chewing tobacco, all saw an increase.

But the biggest hit was on loose cigarette tobacco for those that still roll their own. Usually marketed by smaller companies, it was seen as a cheaper alternative to name brand smokes.

"Roll your own was taxed way way below name brand cigarettes,” says Eric Lindblom of the Campaign for tobacco Free Kids. “So there has been, we think, a shift to roll your own tobacco and roll your own cigarettes in order to escape the high taxes on regular cigarettes."

But the tax for this product went up a whopping 2000%, from just over a dollar a pound to nearly 25 bucks. It has gone from a bargain cigarette substitute to being taxed at the same rate as regular cigarettes. And that has hurt sales.

"We saw then that regular cigarette sales went down and so did roll your own tobacco sales.” Lindblom says. “They went down 51%."

But there was one anomaly.

"The sales of pipe tobacco went up 167%," Lindblom told us.

That's right, these small companies have found a loophole… simply change the label to pipe tobacco which is taxed more lightly.

"The roll your own tobacco is still very popular,” he contends, “but now it's being sold as pipe tobacco."

One goal of the tax was to deter young people who are more price sensitive, but the trends aren't encouraging.

"We've had some progress on youth smoking rates,” Lindblom says, “but that progress has stalled. We're hoping that the federal tax increase will start to reduce those adult and youth smoking rates again more substantially."

In Texas, 21% of high school students smoke, far more than adults, and an additional 13% use spit tobacco.

But, it is a legal product, and now those who roll their own have a tax break…at least for the time being.