De Minimis Ban, Tobacco Drawback Limit Not in Senate Tax Bill
The Senate version of the tax bill moving through Congress cut out two trade-related provisions that passed the House -- one, which would end de minimis for all imports in July 2027, and the other, curtailing drawback for tobacco products.
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The Congressional Budget Office estimated that from fiscal year 2027 through fiscal year 2034, the end of the budget window for the bill, there would be an additional $38.3 billion in tariffs paid due to de minimis ending. The Joint Committee on Taxation estimated that the curtailment of drawback for tobacco products would add $12.1 billion in revenue to the Treasury through the end of FY 2034.
A government affairs professional who watches trade issues, who asked to speak on background, said he and his colleagues are relieved that the Senate Finance language doesn't curtail tobacco drawback or de minimis, "but we’re concerned there might be an amendment offered" as the bill progresses.
"The de minimis is significant, that’s real money," he said. "The one thing I could see, potentially, is they’re so desperate for money, they add that back in."
While there already has been a sharp decline in what previously had been de minimis shipments, due to the executive order ending eligibility for Chinese goods, the trade observer noted that the restriction was imposed under the International Emergency Economic Powers Act, which the Court of International Trade said has been stretched too far by the White House. That ruling is being appealed.
"We’ll see how it all plays out," he said. "Postal has essentially an embargo on packages from China; the carriers don’t want to accept the liability."
The professional wasn't sure why tobacco and de minimis weren't included by the Senate Finance Committee. "They basically were able to punt on those issues," he said.
"The Senate has a very different calculus because of the Byrd rule," he said, which is that provisions in bills that only require a majority vote must primarily be about revenue, and not about policy.
However, it's not clear that's the reason these provisions didn't get in.
During the Biden administration, Democratic lawmakers also sought to limit substitution drawback for excise taxes for tobacco products (see 2109130038) as part of what eventually became the Inflation Reduction Act. However, that provision didn't end up in the final bill. The pay-for came from a regulation that CBP promulgated on what it called "double drawback," because tobacco and alcohol exporters using substitution drawback could get refund of excise taxes and tariffs. The previous attempt to end "double drawback" was retroactive to the time of that rule, in 2018.
However, the Court of International Trade, and a federal appeals court, ruled that the regulation conflicted with congressional intent on drawback (see 2108230021).
Sen. Thom Tillis, R-N.C., took responsibility for convincing the Senate Finance Committee chairman to remove the tobacco provision as a pay-for. Tillis serves on the committee. "I know we're trying to operate in good faith, but at the end of the day, I was convinced that the [tobacco] growers, the farmers, were going to be harmed by it, and that's what made me move the way I did," he said in a brief hallway interview.