Tuesday, July 13, 2004 House Passes Van Hollen Amendment to Stop the $10 Billion Taxpayer-Funded Tobacco Bailout Washington, D.C. - The U.S. House of Representatives today passed an amendment to the Department of Agriculture Appropriations bill, offered by Representatives Chris Van Hollen (D-MD) and Jeff Flake (R-AZ), that will prohibit the use of funds for salaries to implement a taxpayer-funded tobacco bailout.    Last month, the House of Representatives included a $10 billion tobacco grower buyout in HR 4520, the Foreign Sales Corporation bill.  The Flake-Van Hollen Amendment prohibits the U.S. Department of Agriculture from expending funds for salaries to implement this program.  This amendment would still permit the Department of Agriculture to implement a program but requires the use of industry funds as opposed to taxpayer dollars.   The bailout proposal costs the U.S. taxpayer $9.6 billion with no requirements that either the tobacco quota owner or the tobacco grower stop growing tobacco.  Van Hollen called the bailout a “sweetheart deal” for tobacco companies which will then be able to buy cheaper tobacco and save an estimated $270 million this year alone. The sharp drops in tobacco leaf prices prompted by the buyout could reduce cigarette prices, which would then translate into higher smoking rates, especially among kids.   "This is an important victory for taxpayers and for public health,” said Van Hollen.  “Passage of this amendment sends a strong message that the House will not stand for a taxpayer-funded bailout of the tobacco industry.”   Details of the legislation are attached.         The Van Hollen Amendment to Stop the 10 Billion-Dollar Taxpayer-funded Tobacco Bailout     Last month, the House of Representatives included a $10 billion tobacco grower buyout in HR 4520, the FSC bill.  The Flake-Van Hollen Amendment prohibits the U.S. Department of Agriculture from expending of funds for salaries to implement this program   The Tobacco Grower Bailout is deficit spending; the proposal will add $9.6 billion over five years to an estimated $4 trillion dollar deficit.[1]   It is a sweetheart deal for tobacco companies, they get cheaper tobacco and taxpayers get the $10 billion dollar bill.  If U.S. manufacturers could save $0.60/lb. on their 2004 purchase intentions of about 450 million pounds, the savings would amount to $270 million. Additional savings would accrue if a drop in the price of U.S. tobacco pushed down the price of foreign supplies.[2]   The bailout provides no public health benefits.  On May 27, 2004, the Surgeon General of the United States issued a new report finding that smoking is even more harmful than previously believed.[3]  Incredibly, the buyout could increase tobacco use. The sharp drops in tobacco leaf prices prompted by the buyout could reduce cigarette prices, which would then translate into higher smoking rates, especially among kids.   No one is required to exit the tobacco farming business in order to get paid.  In contrast, the State of Maryland implemented a tobacco buyout program that required tobacco growers to exit the tobacco business as a precondition to payment.[4]    The bailout over pays tobacco farmers.  The payments are based on production year 2002.  Quota allocations for burley and flue-cured tobacco, the two main types of U.S. tobacco used in cigarettes have been reduced by a combined 3.3% in 2003 and again by a combined 3.3% in 2004.  The FSC bill pays for 57.1 million pounds of tobacco quota that no longer exists.[5]   Tobacco farming has been very profitable.  Because of the high prices guaranteed under the tobacco quota system, American tobacco farmers have enjoyed one of the highest yields per acre, grossing $3835 per acre of tobacco in 2002.  In contrast, farmers grossed $312 per acre for corn, $215 per acre for soybeans   The amount of tobacco grown in America could actually increase by 50% as a result of the bailout according to estimates by one agricultural economist[6] because eliminating quota would significantly reduce production costs.  The bailout also sets no geographic restrictions on the growing of tobacco and would allow tobacco production to expand across the country.     [1] Most recent estimate of the federal budget deficit from the Congressional Budget Office, www.cbo.gov. [2] Jasper Womach, “Tobacco Quota Buyout Proposals in the 108th Congress”, Congressional Research Service, Library of Congress, April 6, 2004. [3] U.S. Department of Health and Human Services. The Health Consequences of Smoking: A Report of the Surgeon General. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for ChronicDisease Prevention and Health Promotion, Office on Smoking and Health, 2004 http://www.surgeongeneral.gov/library [4] To get more information on Maryland’s tobacco buyout program go to the Tri-County Council for Southern Maryland’s website: http://www.tccsmd.org/web/ag/indexag.html. [5] Tobacco Situation and Outlook Yearbook, TBS-2003, Economic Research Service, U.S. Department of Agriculture, December 2003. [6] A. Blake Brown, “Implications of Elimination of the US Flue-Cured Tobacco Program”, Department of Agricultural and Resource Economics, North Carolina State University, September 18, 1997.