Senator Herb Kohl is sponsoring a bill which would clamp down on illegal tobacco sales. The rationale of the bill is as follows:
(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;CommentsClose
(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
But opponents of the bill say that it would entail prohibiting the shipping of tobacco for personal use. The Internet tobacco retailer Three Feathers Tobacco says that this law would seriously damage companies like them. Specifically, they refer to Section 3 of the bill, which includes this clause:
‘(1) IN GENERAL- All cigarettes and smokeless tobacco (as those terms are defined in section 1 of the Act of October 19, 1949, commonly referred to as the Jenkins Act) are nonmailable and shall not be deposited in or carried through the mails. The United States Postal Service shall not accept for delivery or transmit through the mails any package that it knows or has reasonable cause to believe contains any cigarettes or smokeless tobacco made nonmailable by this paragraph.
There are a few exceptions to this rule, but in general, it will be illegal for average citizens to mail tobacco under the law.
Another concern that Three Feathers raises about the bill is the fact that it would mean fewer revenues for the Postal Service. They would have less revenues because there would be less business through the Postal Service and they would have to hire more help in order to comply with the new law to help intercept illegal tobacco sales. Consequently, Three Feathers argues that an unintended consequence of the bill would entail the Postal Service switching to five-day or even four-day mail service.
The second argument they make is that that cost to enforce this act has not been determined. The act has been considered before; back in 2003, the CBO estimated that it would cost $140 million to enforce. The problem is that this estimate is six years old, meaning that the assumptions and suppositions that the CBO used are likely out of date. However, GovTrack estimates that the bill would cost "less than $2 per American over the 2010-2014 period," or an annual cost of around $160 million.
Other arguments that have been made include the loss of freedom of choice; many consumers would rather buy natural as opposed to commercial; many Native American tobacco products are not available through stores. Another argument is that it would set a dangerous precedent. One of the rationales of the bill is that it would allow the government to collect more excise taxes from the sale of tobacco. But the problem is that this could apply to almost anything, meaning that the government could pass similar legislation restricting or banning the mailing of a lot of goods on the grounds that excise taxes are not being paid.
Senator Herb Kohl made the following speech in support of the bill. I will post it here, along with comments and questions of my own. Blockquotes are from Senator Kohl.
Mr. President, I rise today with Senator Leahy to introduce the Prevent All Cigarette Trafficking, PACT, Act of 2009. As the problem of cigarette trafficking continues to worsen, we must provide law enforcement officials with the tools they need to crack down on cigarette trafficking. The PACT Act closes loopholes in current tobacco trafficking laws, enhances penalties for violations, and provides law enforcement with new tools to combat the innovative new methods being used by cigarette traffickers to distribute their products. Each day we delay passage of this important legislation, terrorists and criminals raise more money, States lose significant amounts of tax revenue, and kids have easy access to tobacco products over the internet.
There are already laws on the books against tobacco trafficking for the purpose of subverting federal tobacco taxes. The question is, will this bill accomplish what Kohl says it will? Or will it simply expand the black market that already exists for these products? On the other hand, there is a consequence for loosening our tobacco regulations -- if we were to loosen the laws regarding our tobacco enforcement, then we would weaken the highly successful SCHIP program, which is funded by tobacco taxes. Back to Kohl:
The cost to Americans is not merely financial. Tobacco smuggling also poses a significant threat to innocent people around the world. It has developed into a popular, and highly profitable, means of generating revenue for criminal and terrorist organizations. Hezbollah, for example, earned $1.5 million between 1996 and 2000 by engaging in tobacco trafficking in the U.S. Al Qaeda and Hamas have also generated significant revenue from the sale of counterfeit cigarettes. That money is often raised right here in the U.S. and it is then funneled back to these international terrorist groups. Cutting off financial support to terrorist groups is an integral part of the protecting this country against future attacks. We can no longer continue to let terrorist organizations exploit weaknesses in our tobacco laws to generate significant amounts of money. The cost of doing nothing is too great.
This claim is from a fact sheet put out by Tobacco Free Kids. This bill has brought together an unlikely alliance of tobacco companies and anti-smoking groups, since the tobacco companies see an opportunity to shut down some of their competition through this bill. Kohl seems to base much of his speech on this fact sheet. In addition, this provision would allow tobacco companies to sue people who are illegally trafficking in tobacco:
Any person who holds a permit under section 5712 of the Internal Revenue Code of 1986 (regarding permitting of manufacturers and importers of tobacco products and export warehouse proprietors) may bring an action in an appropriate United States district court to prevent and restrain violations of this Act by any person other than a State, local, or tribal government.
Kohl continues:
This is not a minor problem. Cigarette smuggling is a multibillion dollar a year phenomenon, and it is getting worse. In 1998, the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE) had six active tobacco smuggling investigations. In 2005, that number swelled to 452. Today there are more than 400 open cases.
The number of cases alone, however, does not sufficiently put this problem into perspective. The amount of money involved is truly astonishing. Cigarette trafficking, including the illegal sale of tobacco products over the internet, costs States billions of dollars in lost tax revenue each year. It is estimated that we lose $5 billion in state revenues due to illegal tobacco sales. As lost tobacco tax revenue lines the pockets of criminals and terrorist groups, states are being forced to college tuition and restrict access to other public programs. Tobacco smuggling may provide some with cheap access to cigarettes, but those cheap cigarettes are coming at a significant cost to the rest of us.
So, I guess we have to pick our poison -- should we pass this bill and risk the USPS going to five or four day service? Or should we reject this bill and let SCHIP and college programs and other state programs go to pot?
According to the Government Accountability Office, each year, cigarette trafficking investigations are growing more and more complex, and take longer to resolve. More people are selling cigarettes illegally, and they are getting better at it. As these cases get tougher to solve, we owe it to law enforcement officials to do our part to lend a helping hand. The PACT Act enhances BATFE's authority to enter premises to investigate and enforce cigarette trafficking laws, and increasing penalties for violations. Unless these existing laws are strengthened, traffickers will continue to operate with near impunity.
Kohl is referring to this section in the bill:
‘(c)(1) Any officer of the Bureau of Alcohol, Tobacco, Firearms, and Explosives may, during normal business hours, enter the premises of any person described in subsection (a) or (b) for the purposes of inspecting--
‘(A) any records or information required to be maintained by the person under this chapter; or
‘(B) any cigarettes or smokeless tobacco kept or stored by the person at the premises.
‘(2) The district courts of the United States shall have the authority in a civil action under this subsection to compel inspections authorized by paragraph(1).
‘(3) Whoever denies access to an officer under paragraph (1), or who fails to comply with an order issued under paragraph (2), shall be subject to a civil penalty in an amount not to exceed $10,000.’.
My question here is, would an ATF officer be able to inspect premises without a warrant? If so, why is that not a violation of the 4th Amendment protections against illegal searches and seizures? And why is that not a violation of probable cause? If the government wants to enforce the laws of this land, then it has to follow the laws of the land itself. Otherwise, this will be a dictatorship and not a republic. If the government wants to make and enforce laws regarding the sale of tobacco, do it legally.
Kohl continues:
Just as important, though, we must provide law enforcement with new enforcement tools--tools that enable them to combat the cigarette smugglers of the 21st century. The internet represents one of those new obstacles to enforcement. Illegal tobacco vendors around the world evade detection by conducting transactions over the internet, and then employing the services of common carriers and the U.S. Postal Service to deliver their illegal products around the country. Just a few years ago, there were less than 100 vendors selling cigarettes online. Today, we estimate that approximately 500 vendors sell illegal tobacco products over the internet.
Without new and innovative enforcement methods, law enforcement will not be able to effectively address the growing challenges facing them today. The PACT Act sets out to do just that by cutting off the delivery. A significant part of this problem involves the shipment of contraband cigarettes through the U.S. Postal Service, USPS. This bill would cut off access to the USPS by making tobacco products non-mailable. We would treat cigarettes just like we treat alcohol, making it illegal to ship them through the U.S. mails and cutting off a large portion of the delivery system.
By way of mitigation, it is already illegal to ship alcohol through the Postal Service. The Cigarette Trafficking Act of 2009 would put tobacco on the same footing as alcohol in that regard. The question is, what kind of effect would that have on the Postal Service's revenues? I have yet to see any kind of figures on what kind of revenues the Postal Service collects each year through the sale of tobacco.
It also employs a novel approach, one being used in some of our States today, to combat illegal sales of tobacco over the internet. Specifically, it will allow the Attorney General, in collaboration with State and local law enforcement, to create a list of companies that are illegally selling tobacco products. That list will then be distributed to legitimate businesses whose services are indispensable to illegal internet vendors--common carriers. Once a common carrier knows which customers are breaking the law, this bill will ensure that they take appropriate action to prevent their companies from being exploited by terrorists and other criminals.
The bill would employ the use of public shaming to expose businesses who are not complying with tobacco laws.
It is important to point out that this bill has been carefully negotiated with the common carriers, including UPS, to ensure that it does not place any unreasonable burdens on these businesses. In recognition of UPS and other common carriers' agreements to not deliver cigarettes to individual consumers on a nationwide basis, pursuant to agreements with the State of New York, we have exempted them from the bill provided this agreement remains in effect.
In addition to these important law enforcement needs, it is important to mention another aspect of this legislation that is equally important. One of the primary ways children get access to cigarettes today is on the internet and through the mails. The PACT Act now contains a strong age verification section that will ensure that online vendors are not selling cigarettes to our children. This provision would prohibit the sale of tobacco products to children, and it would also require sellers to use a method of shipment that requires a signature and photo ID check upon delivery. Most States already have similar laws on the books, and this would simply make sure that we have a national standard to ensure that the internet is not being used to evade similar ID checks we require at our grocery and convenience stores.
Most states require store clerks to card young people who are attempting to buy alcohol or tobacco at their stores. This bill would put Internet tobacco sales in line with the laws of most states in this regard.
The recognition that this is a significant problem, along with the commonsense approach taken in the PACT Act to combat it, has brought together a coalition of strange bedfellows. The legislation has not just garnered the support of the law enforcement community, including the National Association of Attorneys General, and public health advocates, such as the Campaign for Tobacco Free Kids. It also has the strong support of tobacco companies like Altria. These groups, who sometimes find themselves on opposite sides of these issues, all agree that this is an issue begging to be addressed. They all recognize the urgent need to provide our law enforcement officials with the tools they need to combat a very serious threat to our security and protect public health.
You be the judge -- is this bill good, bad, or ugly?