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Jun 2, 2010 9:12 AM by Bea Karnes, News First 5

Tobacco loophole in child health law costs $250M

Public health officials say a tobacco tax loophole in President Barack Obama's children's health insurance program is costing the U.S. Treasury more than $250 million a year.

The loophole allows companies to avoid huge tax increases on rolling tobacco by labeling it as pipe tobacco. The marketing twist lets companies pay less than $3 a pound in taxes, rather than nearly $25 a pound.

Daniel Morris, who tracks tobacco production at the Oregon Department of Health, first identified the loophole last year. Last week, he calculated the one-year effect of the loophole at $250 million.

The Obama administration has been working for a year to clarify the difference between pipe and rolling tobacco. A bill that would close the tax gap has stalled in Congress.

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