It’s no secret that federal tax breaks for manufacturing corporations aren’t very well targeted. Since Congress enacted a special tax deduction for companies engaged in domestic manufacturing back in 2004, we have deplored its use by companies “manufacturing” items as various as gift baskets, B movies and even restaurant reservations. Relentless efforts by aggressive corporate lobbyists have stretched the definition of eligible manufacturing income almost beyond recognition.
But sometimes the manufacturing deduction applies to activities that, while they should be considered to be manufacturing, are nonetheless not activities we want to encourage as a nation. Tobacco companies “manufacture” cigarettes—but do Americans, or lawmakers, really think it’s a good idea for the federal government to subsidize this activity? New financial reports from major corporations in this sector show that cigarette makers are enjoying substantial manufacturing tax breaks for producing products that kill people.
The Altria Corporation, maker of Marlboros, cut its federal taxes by $799 million over the past five years using the manufacturing deduction. Reynolds American, maker of Camel cigarettes and Kodiak chewing tobacco, raked in $359 million over this period, with Lorillard enjoying $233 million in federal tax breaks. The three biggest U.S. tobacco producers cut their federal taxes by $1.3 billion over the last five years using this single tax break.
What makes this even more maddening is that these tax breaks fly in the face of other federal public policies designed to discourage the production and consumption of cigarettes. In the same year that the manufacturing deduction was enacted, Congress enacted a landmark tobacco buyout designed to encourage farmers to shift away from tobacco production. And of course, the substantial cigarette excise taxes levied at both the federal and state level are often viewed as a means of discouraging Americans from spending money on tobacco products.
In a perfect world, Congressional tax writers would be asking hard questions right now about whether it makes sense to offer a special lower tax rate for manufacturing in the first place. But at a minimum, policymakers should be asking whether it makes any sense to subsidize an industry producing products that kill thousands of Americans a year.