Federal officials must end this little-known loophole, protect KY tobacco growers | Opinion

Kentucky’s tobacco farms, once numbering nearly 30,000, are now dwindling to fewer than 1,000 — a stark reminder of the challenges facing independent farmers in our state. Congress has the power to reverse this trend by closing the double duty drawback loophole, a policy that unfairly benefits foreign tobacco companies at the expense of hardworking American growers.

You’d be forgiven if you hadn’t heard of the double duty drawback loophole. But like most loopholes, this little provision has a big impact. It allows a small group of companies to receive substantial federal tax refunds – which cost American taxpayers billions of dollars. Congress allows for a “substitution drawback,” which provides a refund for companies exporting a product if they also import the same product in like quantities. But in 2004, lawmakers also passed a measure that expanded the substitution drawback to include claims for all federal import duties and fees.

Unfortunately, this created the double duty drawback loophole for companies that utilize the bonded warehouse system. By exporting the products out of a bonded warehouse — which is where products sit before federal excise taxes are paid — companies become eligible for a substitution drawback refund, even when those excise taxes were never actually paid. Imagine a foreign tobacco company getting a refund for taxes it never paid—while American farmers are stuck paying their fair share. That’s essentially what the double duty drawback loophole allows.

What does that all mean for tobacco, and how does it impact farmers here in Kentucky? Simply put, foreign tobacco companies are exploiting this accidental policy to get a refund from the Treasury on federal excise taxes they haven’t paid. These are the same federal taxes that domestic manufacturers actually pay on their products for American consumers. These foreign companies then seek out cheaper means of tobacco production across the world and then pass the buck to the American taxpayer when it comes time to pay taxes.

American companies that produce the lion’s share of their products with domestic tobacco cannot take advantage of this loophole and are therefore at a competitive disadvantage. This is precisely what puts Kentucky farmers at risk if these companies then begin sourcing tobacco from other countries.

Beyond farmers, this loophole is a slap in the face to all American taxpayers as the policy is expected to cost the US government more than $12 billion over the next 10 years. These regulations have been manipulated by companies seeking to game the system, and our lawmakers must stop the bleeding.

Both Democrats and Republicans recognize the federal government is unwittingly providing a subsidy to foreign cigarette manufacturers, but a combination of court rulings and aggressive lobbying have kept the loophole in place. That’s why Congress needs to ensure a key provision in President Trump’s so-called “Big Beautiful Bill” remains in the final text. The provision would close the double duty drawback loophole and help reduce the federal deficit by ensuring foreign tobacco companies pay what they owe. It would also protect U.S. companies and growers from an uneven playing field.

Kentucky’s tobacco farmers currently produce an annual crop valued at approximately $225 million – and are just as important to the state as every other domestic industry. Kentucky’s tobacco farmers have been the backbone of our state for generations. Let’s ensure their future by closing this loophole once and for all.

Bruce Cline is a tobacco grower in Crofton, KY.