(DailyChive.com) – Trump’s “One Big Beautiful Bill” includes a hidden tobacco tax that threatens North Carolina’s economy and could cost the state’s tobacco industry $100 million annually.
At a Glance
- A provision in the “One Big Beautiful Bill” would remove tobacco from the federal duty drawback program, effectively creating a new tax.
- North Carolina’s tobacco industry contributes over $30 billion annually to the state’s GDP and supports nearly 200,000 jobs.
- The North Carolina Chamber and Tobacco Growers Association warn the change could cost the industry $100 million annually.
- President Trump has indicated support for Senate modifications to the bill.
- The duty drawback program has been part of U.S. trade policy for over two centuries.
The Hidden Tax in Trump’s Signature Legislation
While the “One Big Beautiful Bill” moving through Congress focuses primarily on extending Trump-era tax cuts, a controversial provision buried within the legislation has raised alarms throughout North Carolina’s agricultural communities. Section 112032 of House Resolution 1 would eliminate tobacco products from the federal duty drawback program, a move that effectively creates a new tax on one of North Carolina’s most economically significant industries.
The duty drawback program, which has been a cornerstone of American trade policy for over two centuries, provides refunds to manufacturers when they export or destroy products that were initially taxed in the United States. This system prevents double taxation and enhances the competitiveness of American goods in global markets. The proposed change would uniquely target tobacco, breaking with longstanding trade principles that promote exports and domestic manufacturing.
Impact on North Carolina’s Agricultural Economy
North Carolina stands to lose significantly if this provision becomes law. The state is home to over 800 tobacco farms and the industry contributes more than $30 billion annually to North Carolina’s GDP. Nearly 200,000 jobs across the state depend on tobacco production and related industries, from farming to manufacturing and distribution. Removing the duty drawback eligibility would potentially reduce farm revenues and trigger ripple effects throughout local economies.
“When Congress taxes a product that can never reach American consumers, it violates a basic principle of sound tax policy: tax neutrality.”
The North Carolina Chamber and the Tobacco Growers Association have expressed significant concerns about the potential economic damage. Industry experts estimate the change could cost tobacco businesses approximately $100 million annually. For smaller manufacturers and growers especially, this additional financial burden could lead to consolidation within the industry, reduced competition, and ultimately job losses throughout rural communities that depend on tobacco cultivation.
Defending Competitiveness in Global Markets
Advocates for maintaining tobacco’s eligibility in the drawback program emphasize that the system does not encourage domestic tobacco consumption. The refunds apply only to products that are exported or destroyed, meaning they never reach American consumers. Instead, the program ensures that American tobacco farmers and manufacturers can compete effectively in international markets where they face competitors who benefit from similar tax policies in their home countries.
“Fortunately, North Carolina’s own Tobacco Associates, Inc. has recognized the threat.”
Without the drawback program, U.S. tobacco exports would face a significant disadvantage in global markets. The industry currently contributes over $1 billion and supports approximately 7,470 jobs in North Carolina’s economy through export activities alone. Many rural communities that have historically depended on tobacco cultivation would face economic hardship if these exports become less competitive internationally.
Potential for Senate Amendments
As the bill advances to the Senate, there remains hope for modifications that could protect North Carolina’s tobacco industry. President Trump has expressed openness to changes, acknowledging that Senate amendments might improve certain aspects of the legislation. This flexibility provides an opportunity for North Carolina’s congressional delegation and industry representatives to advocate for preserving the drawback program’s applicability to tobacco products.
“I want the Senate and the senators to make the changes they want. It will go back to the House and we’ll see if we can get them. In some cases, those changes may be something I’d agree with, to be honest. … I think they are going to have changes. Some will be minor, some will be fairly significant.”
Senate Majority Leader John Thune has indicated that Senate Republicans intend to leave their mark on the legislation, which could provide an avenue for addressing concerns about the tobacco provision. The reconciliation process will require any Senate changes to be approved by the House before the bill can advance to President Trump’s desk, creating multiple opportunities for adjustment as the legislation progresses through Congress.
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