Last spring, President Obama signed a bill into law that raised the tax on roll-your-own cigarette tobacco from $1.10 per pound to a whopping $24.78 per pound. The revenue from the tax was to be put towards expanding children’s health insurance programs. But tobacco companies have found a way to sidestep the new tax: they have started re-labeling the same product as pipe tobacco, which is taxed at only $2.83 a pound. As a result, the market for roll-your-own tobacco has exploded, quintupling in just five months. Exploiting the tax loophole this way also lets tobacco companies thumb their nose at the new U.S. Food and Drug Administration's tobacco regulations by continuing to sell sweet and fruity-flavored tobaccos, which are banned under the new rules because they are attractive to youngsters. Tobacco companies are saying they've merely found a way to save themselves from a prohibitively high tax that would force them out of business.
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