Tobacco Documents Online

BOOTLEGGING NATIONAL BULLETIN October 9, 1981 NB-81-18 THE BATF REORGANIZATION Motivated in part by the grass-roots calling for abolition from the National Rifle Association, in part by the need for additional bud- get cuts, and in part by its doctrine of "New Federalism!', the Reagan Administration is investigating the appropriate level of resources to be allocated to BATF for its enforcement activities, and whether and ,. to what extent BATF activities should be transferred to other agencies. The Bureau of Alcohol, Tobacco, and Firearms (BATF) , an agency of the Treasury Department, was created on July i, 1972 per Treasury Department Order No. 221 and provided with two basic sets of functions - criminal enforcement and regulatory ehforcement. At its inception, BATF brought together in one agency the excise tax collection functions formerly housed in the Alcohol and Tobacco Tax Unit of the Internal Revenue Service, and certain criminal enforcement functions relevant to the collection of excise taxes (e.g. border smuggling and bootlegging), and housed in other agencies of Treasury, Reagan Administration ultimately decides severe budget cutback slated for BATF in tails a loss in certain functions. Regardless of whether the to dismantle the agency, the the second round of cuts, en- On October i, before the House Judiciary Committee's Sub-Com- mittee on Crime at a hearlng called by Representative William. J'. Hughes (D-NJ), the Treasury Department's Assistant Secretary for Enforcement and Operations, John M. Walker, Jr. Said: (continued on page 2) SUPPORT PROGRAM [2] ~USE BEGINS CONSIDERATION OF H.R. 3603, T~USE VERSION OF THE FARM BILL; REP. FOUNT~fI~i~0SUBMITS WHARTON DATA On October 2, two .w~eeks after the Senate pas~ed its verslon of the 1981 Food and Agricult~e~A.ct, the "Far~...~. BiIi, the House began for- mal consideration of its o~ foal'--of fa~ legislation, H.R. 3603. Be- fore the House recessed on October 6-,~.l~ttle action was taken on the b~ll, due partly to the A~in~stratlon's ~re to prevent dalry price supports from increasing October 1 under the ~inuing budget resolu- tion, and partly t~ the" ~act that Title I of the b'~ d~als with the A~~~ ~ :" (c ~ ~S~TIO~ OF THE U S. (2~2) ~35 T!21991351

(continued "While eliminate a number of activities are being considered, no final de- cision has been made by the department to dismantle or abolish BATF." from page i) a number of possible options to reorganize and possibly In order to assess the agency, Mr. Walker reported that a steer- ing committee had been formed [headed by Deputy Assistant Secretary for Enforcement, Robert Powess] and that its report would be ready in two weeks. But while Mr. Walker was somewhat vague about a memorandum from his office and read by Rep. Hughes implying that "a phase-out of BATF" was certain, his testimony on the role of BATF in enforcing the Federal Cigarette Contraband Act of 1978 was more clear. In contrast to BATF's current practice of using field investigators to uncover violations of the Federal la~ a practice some claim has.been respon- sible for greatly curtailing the flow of contraband cigarettes, BATF would be reduced only to responding to State calls for enforcement assistance when a given State believes the Federal Law has been vio- lated. Cigarette bootleggi~ was first made a federal offense with the enactment in November 1978 of S1487, (PL-95-575), the Federal Ciga- rette Contraband Act of 1978. PL-95-575 makes cigarette bootlegging a Federal offense, punishable by a fine of up to $100,000 or prisQn of up five years, or both for any person knowingly to ship, transport, receive, possess, sell, distribute or purchase "contraband cigarettes." "Contraband cigarettes" are defined as cigarettes in a quantity ~n ex- cess of 60,000 lacking tax indicia of the state in which found, in the possession of persons other than four specific classes of persons. This provision of the bill become effective when President Carter signed the bill on Nov. 2, 1978. The law also made it an offense to knowingly make false statements or representations with respect to in- formation ~equ~red to be kept ~n the r~cords of a person who ships, sells or dlstrlbutes any quantlty of clgarettes in excess of 60,000 in a single transaction. This part of the bill became effective April i, 1979. PL-95-575, which provided the basis for BATF's anti-bootlegging activities, was itself based on research done by the Advisory Comm- ission on Intergovernmental Relations on the cigarette tax evasion problem and published in 1977 as "Cigarette Bootlegging: A State and Federal Responsibility." The main findings and policy suggestions of the study concerned the magnitude of the cigarette bootlegging problem, its causes and consequences and possible means of control. The Commission estimated NB-81£18 TI21991352

.hat cigarette bootlegging cost high tax states $391 million in 1975 and that such bootlegging was a serious problem in 14 States and a mod- erately serious problem in another 8 States. The basic causes of the problem, according to the study, are the disparity in State cigarette tax rates, the fact that States only impose a light penalty for cigar- ette bootlegging, and that it is not a Federal offense. Because of ex- tensive cigarette bootlegging, the study said, State and local govern- ment use of cigarette tax as a revenue source is limited, tobacco whole- salers and retailers in many states will continue to suffer reduced sales and profits and.in many cases will be driven out Qf business and jobs will be'lost. Taxpayers also pay higher taxes or receive fewer services, the report cohcluded, and organized crime reaps large profits that are used to finance illegal activities in other areas. According to the commission's study the ideal solution to the problem would be a uniform state cigarette tax. .However, a law ~nfor- cement approach to the problem was the only reallstic and effectlve way to deal with bootlegging, • ._ the study said, because of the great political barriers ~? ~ne enactment of a uniform cigarette tax rate in th~ fifty States. Yne States were also unlakely to allocate the needed resources to adequately control the problem because of their budget limitations and lack of support in the States for strong enforcement of cigarette tax laws. The study concluded with two basic policy suggestions: (i) The States should strengthen their tax laws, work for greater cooperation and try to increase their law enforcement resources. • (2) Federal assistance should be provided since bootlegging is an ~nterstate problem and only the Federal government has the authority and resources to operate in all States affected by cigarette bootlegging. The study called for federal legislation making interstate trans- portation of contraband cigarettes a federal offense. IBATF's LEGAL GUIDELINES BATF is presently responsible wholly or in part for the enfor- cement of the following nine laws: 1. Crude Oil Windfall Profits Tax of 1980 ~m~nd~ £he Int4~nal Revenue Code and establishes a new type of distilled spirits plant, the alcohol fuel plant. AFT is responsible for licensing of these plants. 2. Distilled Spirits..Tax Revenue Act of 1979 ~rovides that liquor be taxed softly on the basis of alcohol content and allows an additional deferral period for payment on spirits bottled in the U.S. ~B-81-18 TI21991353

3. Contraband Cigarette Act of 1978 . ~ Prohibits the possession or transportatlon of c~ntra- band cigarettes and provides for recordkeeping and inspect- ion functions. 4. Mutual Security Act o~ 1976. Gives'the president dlscretlonary authority to assign to AFT control of the importation of arms, ammunition and the implements of war. 5. Title XI of Organized Crime Control Act .of 1970 Establishes a system of federal controls over the inter- state and foreign commerce of explosive materials through licenses and permits to curb the misuse of explosives. 6. Title VII of the Omnibus Act o~ 196~~' Crime Control and Safe Streets 7.. Gun Control Act of 1969 Amends the National Firearms Act of 1934 that regulated machine guns and shotguns; repeals the Federal Firearms Act of 1938 and sets 'recordkeeping and eligibility requirements for the purchase and sale of firearms. 8. Internal Revenue Code of 1954 Sets limits on th~ amount of tax collected on the manu- facture of alcoholic beverages, tobacco products, and firearms. 9. Federal Alcohol Administration Act of 1935 ~efin~s unlaw'ful trade practices in the alcoholic beverage industry; prohibits the use of "active" athletes in alcohol advertising. KEY BATF FUNCTIONS As the following list of specific functions indicates, BATF concentrates most on alcohol and firearms/explosives: 1. Imposes, monitors and collects the excise taxes on distilled spirits, beer, wine and tobacco products. 2. Makes periodic inspection of tobacco manufacturing plants, breweries and wineries, as this relates to the tax collection function. 3. Licenses and supervises the manufacture of alcohol and tobacco products. Under a law enacted in ~897 and amended in 1902 tobacco product manufacturers, sub3ect to federal excise tax, are prohibited from including lottery materials, and materials classified as "immoral or indecent" with their packages of tobacco products. Also, BATF is responsible for ensuring that the type of product.package (e.g. 20 Class A NB-81"I8 T121991354

cigarettes) and the identity of the manufacturer appears on the package. 4. Monitors advertising, packaging and formulation of alcoholic beverages to ensure that the products are safe and accurately labeled and sets packaging and labeling requirements for alcoholic beverages. Note: The Bureau of Consumer Affairs in the Anti-trust division of the Justice Depart- ment is responsible for enforcing the health warning on cigarette packages and the Fed- eral Trade Commission enforces the health warning requirements in cigarette advertising. result in 5. Investigates trade practices that could alcoholic beverages law violations. 6. Works to eliminate the transport of illegal distilled spirits. 7. Attempts to prevent consumer deception, commercial bribery and improper trade practices in the liquor industry. 8. Inspects the premises of federal firearms and explo- sives licensees. 9. Regulates the possession and use of firearms, destructive devices and explosives. i0. Regulates the manufacture of alcohol fuels, including gasohol production. ii. Administers certain environmental,protection programs such as efforts to curb water pollution. 12. Develops methods to locate bombs before an explosion and to trace the sources of explosives after detonation. 13. Performs laboratory analyses and other technical op- erations to aid local law enforcement agencies in gathering. evidence for criminal prosecutions. 14. Traces gun registration for local law enforcement officials. 15. Enforces the Federal Cigarette Contraband Act. (see text). BATF' s BUDGET The Carter Administration proposed, in its FY 1982 Budget Appro- priation measure, to increase BATF's appropriation to $160 million from $149.85 million in FY 1982. The first round of'Reagan Administration cuts reduced the ~ppropriation to $150 million, a.real ~t of more than 10% considering inflation. Under the second round of R~&gan Administra- tion cuts, ~alling for a 12% cut across the board, BATF is reportedly likely to take about 20% of Treasury's 12% cut since the IRS, the Secret Service, and Immigration are likely to be spared additional cuts. Ab- sorbing a further 20% cut would reduce BATF's FY 1982 budget appropri- ation to about $120 million, or about 40% below an inflation level in- crease for FY 1982 above FY 1981. Such a large cut would seem to imply a necessary transfer of at least some functions to other agencies, assuming these functions are not eliminated entirely. As the table below shows, BATF's FY 1981 budget share was 3.9% of Treasury's total appropriation, and its 3,555 employees, 2.9% of the total Treasury staff. NB-81-18 ~ T!21991355

Ccontinued from page I) especially controversial subject of these supports. The House will return on October 13 and continue its Title by Title consideration of the bill on October 14. The amendment to eliminate the tobacco price support and allotment pro- grams, which follows Rap. Petri's bill, H.R. 3998, "The Tobacco De- regulation Act of 1981" (see NB- 81-13) except for the cigarette and cigar tax increases, will be introduced as a separate Title, Title XVII, though it is now un- certain whether Rap. Petri (D-Wisc) or Rap. Shamansky (D-OH) will formally introduce the amendment. Since the House hopes to complete action on the Farm Bill in two weeks, this tobacco amendment probably will not come up until the week of October 19. 2o22~ 2,551 3,600 REP. FOUNTAIN SUBMITS WHARTON DATA' ~| ~October l,.Rep. Fountain, in supp.ort of his oppositlon to "...any am~qdment whlch would gut or otherwlse damage the tobacco program ...(or) seve~.~ly alter the present peanut or tobacco program" (CR 10/1/81 H6773), submit~the follow, ing. data for the 50 States drawn from the Wharton study: ~~ct and Ind~i'ect employment, percent of State jobs, direct and indirect bqmpensation, percent of State wages, direct State tax receipts, and dire~£..Federal tax receipts. Rap. Fountain's "Dear Colleague" letter of Sept~ber 25, which accompanied the data (see pages 7 & 8), provided a defense b~ the peanut program and the following eight major reasons for continued Ho~s~ support for the tobacco program: i. There is no connection baleen tobacco support and tobacco 5. 6. 7. consumption; ~ Tobacco support is not a subsi~; Tobacco support is."...cheap, di~.cheap. Indeed, among all the Federal commodity programs, the~~bacco program most effective and least costly." "'~ is the Tobacco earns government dollars at all ~vels; Tobacco provides over 2.m~llion jobs; Tobacco contrlbutes posltlvely to the U.S. B~.ance of Trade; T~e "...land used in the production of tobacco~.s a high value, and thus the taxes on this land are ~_gh._~.f the tobacco program is destroyed, land values will plu~t and property taxes will follow suit. Where will the fund~ost through lower taxes come from?" Loss of the tobacco program would entail a net loss of employmentexpenditures.fOr tobacco growers and create~needed government~ Farrell Delman Nail Shandalow NB-81-18 T!21991356