Tobacco Quota Buyout Proposals in the 108th Congress

Publication Date: November 2004

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Agriculture, forestry and fishing

Type:

Abstract:

On October 22, 2004, the tobacco quota buyout was signed into law. Title VI of P.L. 108-357 is known as the Fair and Equitable Tobacco Reform Act of 2004. This legislation eliminated the tobacco quota program and compensated active producers and absentee quota owners for the lost value. The concept of a quota buyout was not new, but it gained political momentum after being endorsed in the final report of a presidential commission on tobacco, Tobacco at a Crossroads, A Call for Action (May 14, 2001), and by the leading U.S. cigarette manufacturer, Philip Morris. Several quota bills were introduced in the 107th Congress without subsequent legislative action. Supporters of a buyout and legislative sponsors again put the proposal on the legislative agenda of the 108th Congress by introducing several differing bills.

Eventually, H.R. 4033 (Jenkins; March 25, 2004) and S. 1490 (McConnell; July 30, 2003) were attached to unrelated tax legislation (H.R. 4520 in the House and S. 1637 in the Senate), which was taken up by conferees on October 5, 2004. These bills proposed to eliminate tobacco quotas and the price support loan program. As compensation, quota owners (including absentee owners) and active producers would receive lump sum payments. Active producers were to receive $7 per pound in the House version or $8 per pound in the Senate version for the quota they owned in 2002, plus $3 per pound in the House version or $4 per pound in the Senate version for the quantity of tobacco they were allowed to produce. Most producers grow more than the quota they own because they lease quota from other landlords. The absentee landlords also were be paid for the quota they owned in 2002.

The estimated cost of the House and Senate bills was, respectively, $9.6 billion and $12 billion. The source of funding for the two bills differed, coming from the federal treasury in the House bill and from tobacco product manufacturers and importers in the Senate bill.

Many public health advocates and Philip Morris strongly supported a tobacco quota buyout accompanied by new legal authority for the Food and Drug Administration (FDA) to regulate tobacco products. The proposed FDA authority was included in identical bills in the House and Senate (H.R. 4433, Davis-Waxman; and S. 2461, DeWine-Kennedy). The FDA authority also was included in the Senate version of the tax bill, but not in the House version, where there was strong opposition.

The Chairman's mark for the conference committee on H.R. 4520 included a tobacco title (Title VI) that closely matched the House version, H.R. 4033, with quota buyout payments of $7 per pound and active producer payments of $3 per pound. Under the conference agreement, funding would come from assessments on tobacco product manufacturers and importers (as proposed in S. 1490). FDA regulatory authority over tobacco products, however, was not included.

This report is intended to serve as a history and evolution of the tobacco buyout. It will not be updated.