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116th Congress   }                                             {   Report
                         HOUSE OF REPRESENTATIVES
 2d Session      }                                             {  116-400

======================================================================



 
                 PROTECTING AMERICAN LUNGS ACT OF 2019

                                _______
                                

 February 21, 2020.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Neal, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4742]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4742) to amend the Internal Revenue Code of 1986 to 
impose a tax on nicotine used in vaping, etc, having considered 
the same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     3
          C. Legislative History.................................     5
 II. EXPLANATION OF THE BILL..........................................6
          A. Imposition of Tax on Nicotine for Use in Vaping 
              (sec. 1 of the bill and secs. 5701 and 5702 of the 
              Code)..............................................     6
III. VOTES OF THE COMMITTEE..........................................11
 IV. BUDGET EFFECTS OF THE BILL......................................12
          A. Committee Estimate of Budgetary Effects.............    12
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    12
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    12
  V. OTHER MATIERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......16
          A. Committee Oversight Findings and Recommendations....    16
          B. Statement of General Performance Goals and 
              Objectives.........................................    17
          C. Information Relating to Unfunded Mandates...........    17
          D. Applicability of House Rule XXI, Clause 5(b)........    17
          E. Tax Complexity Analysis.............................    17
          F. Congressional Eannarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    17
          G. Duplication of Federal Programs.....................    18
          H. Hearings............................................    18
 VI. CHANGES IN EXISTING LAW PROPOSED BY THE BILL....................18
VII. DISSENTING VIEWS................................................23

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Protecting American Lungs Act of 
2019''.

SEC. 2. IMPOSITION OF TAX ON NICOTINE FOR USE IN VAPING, ETC.

  (a) In General.--Section 5701 of the Internal Revenue Code of 1986 is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
  ``(h) Nicotine.--On taxable nicotine, manufactured in or imported 
into the United States, there shall be imposed a tax equal to the 
dollar amount specified in section 5701(b)(1) (or, if greater, $50.33) 
per 1,810 milligrams of nicotine (and a proportionate tax at the like 
rate on any fractional part thereof).''.
  (b) Taxable Nicotine.--Section 5702 of such Code is amended by adding 
at the end the following new subsection:
  ``(q) Taxable Nicotine.--
          ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `taxable nicotine' means any nicotine 
        which has been extracted, concentrated, or synthesized.
          ``(2) Exception for fda-approved nicotine replacement 
        therapies.--Such term shall not include any nicotine if the 
        manufacturer or importer thereof demonstrates to the 
        satisfaction of the Secretary that such nicotine will be used 
        in a product which has been approved by the Food and Drug 
        Administration for sale as a nicotine replacement therapy.
          ``(3) Coordination with taxation of other tobacco products.--
        Cigars, cigarettes, smokeless tobacco, pipe tobacco, and roll-
        your-own tobacco shall not be treated as containing taxable 
        nicotine solely because the nicotine naturally occurring in the 
        tobacco from which such product is manufactured has been 
        concentrated during the ordinary course of manufacturing.''.
  (c) Taxable Nicotine Treated as a Tobacco Product.--Section 5702(c) 
of such Code is amended by striking ``and roll-your-own tobacco'' and 
inserting ``roll-your-own tobacco, and taxable nicotine''.
  (d) Manufacturer of Taxable Nicotine.--Section 5702 of such Code is 
amended by adding at the end the following new subsection:
  ``(r) Manufacturer of Taxable Nicotine.--
          ``(1) In general.--Any person who extracts, concentrates, or 
        synthesizes nicotine shall be treated as a manufacturer of 
        taxable nicotine (and as manufacturing such taxable nicotine).
          ``(2) Application of rules related to manufacturers of 
        tobacco products.--Any reference to a manufacturer of tobacco 
        products, or to manufacturing tobacco products, shall be 
        treated as including a reference to a manufacturer of taxable 
        nicotine, or to manufacturing taxable nicotine, 
        respectively.''.
  (e) Effective Date.--The amendments made by this section shall apply 
to articles manufactured or imported in calendar quarters beginning 
more than 90 days after the date of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R 4742, the Protecting American Lungs Act of 2019, amends 
the Internal Revenue Code of 1986, as amended, to impose a tax 
on nicotine used in vaping, etc., that is manufactured in or 
imported into the United States, with certain exceptions. H.R. 
4742 defines taxable nicotine as any nicotine which has been 
extracted, concentrated, or synthesized, and imposes an excise 
tax on taxable nicotine at a rate of $27.81 per gram of 
nicotine.

                 B. Background and Need for Legislation

    E-cigarettes are battery-operated devices that heat a 
liquid into a vapor for inhalation. Usually this liquid 
contains nicotine and can contain other ingredients such as 
flavors and cannabis oils.\1\ E-cigarettes entered the U.S. 
market circa 2006 and are an approximately $20 billion global 
industry today.\2\\3\ Juul Labs, Inc. is the largest e-
cigarette provider in the U.S., controlling more than 70 
percent of the e-cigarette market.\4\ People often use the 
terms ``e-cigarettes,'' ``vapes'' and ``Juuls'' 
interchangeably.
---------------------------------------------------------------------------
    \1\Public Health Consequences of E-Cigarettes. The National 
Academies of Sciences, Engineering, and Medicine, (2018). Available at: 
https://www.nap.edu/resource/24952/012318ecigaretteHighlights.pdf.
    \2\Jones, Lora. ``Vaping: How popular are e-cigarettes?'' BBC News, 
(2019). Available at: https://www.bbc.com/news/business-44295336.
    \3\E-Cigarettes: Use and Taxation. World Bank Group, (2019). 
Available at: http://documents.worldbank.org/curated/en/
356561555100066200/pdf/E-Cigarettes-Use-and-Taxation.pdf.
    \4\Behind the Explosive Growth of JUUL. Truth Initiative, (2019). 
Available at: https://truthinitiative.org/research-resources/emerging-
tobacco-products/behind-explosive-growth-juul.
---------------------------------------------------------------------------
    E-cigarettes are the most commonly used nicotine-containing 
products among American youth.\5\ With more than 15,500 
flavors, a variety of colorful packaging, tech appeal, and 
engaging marketing strategies, e-cigarettes are very appealing 
to kids and teens.\6\ The Surgeon General has described e-
cigarette use among youth as an epidemic.\7\ According to the 
Centers for Disease Control and Prevention (CDC), there were 
3.6 million American middle and high school e-cigarette users 
in 2018.\8\ According to the most recent CDC data, more than 
one in four high school students say they have used an e-
cigarette in the past 30 days.\9\ The 2018 Monitoring the 
Future (MTF) survey--which offers a look into the drug use and 
attitudes of the nation's eighth, 10th, and 12th graders--found 
that between 2017 and 2018, the percentage of 12th graders who 
reported vaping nicotine nearly doubled.\10\ This translates to 
1.5 million more students using e-cigarettes in 2018 compared 
to 2017. This year-over-year increase was the most significant 
growth in use of any substance tracked by the MTF survey since 
it began in 1975.\11\
---------------------------------------------------------------------------
    \5\``E-cigarette Market 2019 Industry News by Revenue, Business 
Growth, Top Key Players Update, Industry Demand, Share, Global Trend, 
Business Statistics and Research Methodology by Forecast to 2024,'' 
MarketWatch, (2019). Available at: https://www.marketwatch.com/press-
release/e-cigarette-market-2019-industry-news-by-revenue-business-
growth-top-key-players-update-industry-demand-share-global-trend-
business-statistics-and-research-methodology-by-forecast-to-2024-2019-
06-12.
    \6\``Industry Watch. Juul E-Cigarettes: Fueling a Youth Epidemic,'' 
Campaign for Tobacco-free Kids, (2019). Available at: https://
www.tobaccofreekids.org/what-we-do/industry-watch/e-cigarettes.
    \7\Surgeon General's Advisory on E-cigarette Use Among Youth, U.S. 
Department of Health and Human Services, Office of the Surgeon General, 
(2019). Available at: https://e-cigarettes.surgeongeneral.gov/
documents/surgeon-generals-advisory-on-e-cigarette-use-among-youth-
2018.pdf.
    \8\K. Cullen, et al., Flavored Tobacco Product Use Among Middle and 
High School Students--United States, 2014--2018. Centers for Disease 
Control and Prevention, (2019). Available at: https://www.cdc.gov/mmwr/
volumes/68/wr/mm6839a2.htm.
    \9\Id.
    \10\L.D. Johnston, et al., Monitoring the Future National Survey 
Results on Drug Use 1975-2018 (January 2019). Institute for Social 
Research, University of Michigan, (2019). Available at: https://
files.eric.ed.gov/fulltext/ED594190.pdf.
    \11\Volkow, Nora, ``Monitoring the Future Survey Results Show 
Alarming Rise in Teen Vaping,'' National Institute on Drug Abuse, 
(2018). Available at: https://www.drugabuse.gov/about-nida/noras-blog/
2018/12/monitoring-future-survey-results-show-alarming-rise-in-teen-
vaping.
---------------------------------------------------------------------------
    With this increase in e-cigarette use, related lung 
illnesses have also spiked. As of October 17, 2019, the CDC 
confirmed 1,358 cases of vaping-related illnesses across the 
U.S., including 33 deaths.\12\ This is an increase of 180 cases 
and seven deaths from the previous week. The CDC still doesn't 
know what is causing the illnesses and has not identified a 
brand or substance tied to all cases.\13\
---------------------------------------------------------------------------
    \12\CDC, States Update Number of Cases of Lung Injury Associated 
with Use of E-cigarette, or Vaping, Products. Centers for Disease 
Control and Prevention, (2019). Available at: https://www.cdc.gov/
media/releases/2019/s1017-update-number-lung-injury-cases.html.
    \13\Id.
---------------------------------------------------------------------------
    Experts agree that e-cigarettes are a gateway to youth 
smoking. The National Academies of Science, Engineering and 
Medicine concluded there is ``substantial evidence'' that if 
young adults use e-cigarettes, they are at increased risk of 
using traditional cigarettes.\14\ E-cigarettes typically 
contain nicotine, which is highly addictive.\15\ One Juul pod 
can contain as much nicotine as a full pack of cigarettes, or 
about 200 puffs.\16\
---------------------------------------------------------------------------
    \14\New Report One of the Most Comprehensive Studies on Health 
Effects of E-Cigarettes; Finds That Using E-Cigarettes May Lead Youth 
to Start Smoking, Adults to Stop Smoking. National Academies of 
Sciences, Engineering and Medicine, (2018). Available at: http://
www8.nationalacademies.org/onpinews/newsitem.aspx?Reco 
rdID=24952&_ga=2.227315540.810940964.1516640363-1933305849.1453397105.
    \15\``Quick Facts on the Risks of E-cigarettes for Kids, Teens, and 
Young Adults,'' Centers for Disease Control and Prevention, (2019). 
Available at: https://www.cdc.gov/tobacco/basic_information/e-
cigarettes/Ouick-Facts-on-the-Risks-of-E-cigarettes-for-Kids-Teens-and-
Young-Adults.html.
    \16\``How much nicotine is in JUUL?'' Truth Initiative, (2019). 
Available at: https://truthinitiative.org/research-resources/emerging-
tobacco-products/how-much-nicotine-juul.
---------------------------------------------------------------------------
    Product manufacturers claim that e-cigarettes are a useful 
alternative to smoking and can help people smoking traditional 
tobacco cigarettes quit. However, the Food and Drug 
Administration (FDA) has not found any e-cigarette to be safe 
and effective in helping smokers quit. E-cigarettes contain 
harmful chemicals, including some of the same toxic chemicals 
found in regular cigarettes, such as nicotine, formaldehyde, 
and lead.\17\ While these toxic chemicals may be at lower 
levels compared to regular cigarettes, they remain harmful and 
can cause cancer, birth defects, or other health problems. Due 
to differences in regulation compared to traditional 
cigarettes, e-cigarette manufacturers are not yet required to 
disclose the chemicals in their products, where they are 
manufactured, how they are made, or the potential health risks 
they pose.\18\
---------------------------------------------------------------------------
    \17\``The Impact of E-Cigarettes on the Lung,'' American Lung 
Association, (2019). Available at: https://www.lung.org/stop-smoking/
smoking-facts/impact-of-e-cigarettes-on-lung.html.
    \18\Id.
---------------------------------------------------------------------------
    Tobacco excise taxes reduce youth tobacco use.\19\ 
Currently, there is no federal excise tax on the nicotine 
contained in e-cigarettes. The World Health Organization and 
the Secretariat of the Framework Convention on Tobacco Control 
have recommended that countries treat and regulate e-cigarettes 
no differently than other tobacco products.\20\ The Surgeon 
General has called raising prices on cigarettes ``one of the 
most effective tobacco control interventions'' because 
increasing price is proven to reduce smoking, especially among 
kids.\21\
---------------------------------------------------------------------------
    \19\Raising Cigarette Taxes Reduces Smoking, Especially Among Kids 
(and the Cigarette Companies Know It). Campaign for Tobacco-free Kids, 
(2019). Available at: https://www.tobaccofreekids.org/assets/
factsheets/0146.pdf.
    \20\World Bank Group, supra note 3.
    \21\The Health Consequences of Smoking--50 Years of Progress. U.S. 
Department of Health and Human Services, Office of the Surgeon General, 
(2014). Available at: https://www.hhs.gov/sites/default/files/
consequences-smoking-exec-summary.pdf.
---------------------------------------------------------------------------
    H.R. 4742 would impose an excise tax on nicotine at a rate 
of $27.81 per gram. This tax could result in up to a 75 percent 
increase in the cost of Juul pods. Numerous economic studies in 
peer-reviewed journals have documented that cigarette tax or 
price increases reduce both adult and underage smoking. The 
general consensus is that nationally, every 10 percent increase 
in the real price of cigarettes reduces adult smoking by about 
two percent, reduces smoking among young adults by about 3.5 
percent, reduces the number of kids who smoke by six or seven 
percent, and reduces overall cigarette consumption by 
approximately three to five percent.\22\
---------------------------------------------------------------------------
    \22\State Tobacco Tax Increases: Explanations and Sources for 
Projections of New Revenues & Benefits. Cancer Action Network, (2020). 
Available at: https://www.fightcancer.org/policy-resources/state-
tobacco-tax-increases-explanations-and-sources-projections-new-
revenues.
---------------------------------------------------------------------------
    While the tax imposed under H.R. 4742 is primarily directed 
at e-cigarettes, it applies to all nicotine, with two primary 
exceptions. First, nicotine found in traditional tobacco 
products is exempted, because those products are already 
subject to a federal excise tax. Second, the tax would not 
apply to nicotine used in a product determined by the FDA to be 
a nicotine replacement therapy. By taxing nicotine (rather than 
nicotine products), the excise tax would apply to nicotine 
ingested by any method, and not just on e-cigarettes. Imposing 
the excise tax on nicotine (rather than nicotine products) also 
ensures that e-cigarette liquid mixed by the end user is 
subject to tax on the nicotine in the liquid.

                         C. Legislative History


Background

    H.R. 4742, the Protecting American Lungs Act of 2019, was 
introduced on October 18, 2019, and was referred to the 
Committee on Ways and Means.

Committee hearings

    In light of the urgent public health crisis caused by the 
increased use of vaping, the Committee chose to move 
expeditiously to consider legislation. The Committee on 
Appropriations, the Committee on Energy and Commerce, and the 
Committee on Oversight and Reform have established a fulsome 
record of hearings.
           On October 16, 2019, the Committee on 
        Appropriations held a subcommittee hearing entitled, 
        ``E-cigarettes: An Emerging Threat to Public Health,'' 
        to discuss the magnitude of the current vaping-related 
        lung disease epidemic from e-cigarette use.
           On Wednesday, October 16, 2019 the Committee 
        on Energy and Commerce held a subcommittee hearing 
        entitled, ``Legislation to Reverse the Youth Tobacco 
        Epidemic,'' to discuss H.R. 2339, Reversing the Youth 
        Tobacco Epidemic Act of 2019.
           On September 24, 2019, the Committee on 
        Oversight and Reform held a subcommittee hearing 
        entitled, ``Don't Vape: Examining the Outbreak of Lung 
        Disease and CDC's urgent Warning Not to Use E-
        Cigarettes,'' to discuss the outbreak of lung illness 
        associated with using e-cigarette products, the causes 
        of the outbreak, the CDC and state health officials 
        warning against the use of e-cigarettes, and CDC 
        reports that youth use of e-cigarettes has risen again.
           On July 25, 2019, the Committee on Oversight 
        and Reform held a subcommittee hearing entitled 
        ``Examining JUUL's Role in the Youth Nicotine Epidemic: 
        Part II,'' to discuss JUUL's role in the youth nicotine 
        addiction epidemic, marketing to youth, misleading 
        health claims, and new partnerships with traditional 
        tobacco companies.
           On July 24, 2019, the Committee on Oversight 
        and Reform held a subcommittee hearing entitled, 
        ``Examining JUUL's Role in the Youth Nicotine Epidemic: 
        Part I,'' to discuss JUUL's role in the youth nicotine 
        addiction epidemic, marketing to youth, misleading 
        health claims, and new partnerships with traditional 
        tobacco companies.

Committee action

    The Committee on Ways and Means marked up H.R. 4742 on 
October 23, 2019, and ordered the bill, as amended, favorably 
reported by a vote of 24 yeas, 15 nays, and one present.

                      II. EXPLANATION OF THE BILL


A. Imposition of Tax on Nicotine for Use in Vaping (sec. 1 of the bill 
                  and secs. 5701 and 5702 of the Code)


                              PRESENT LAW

    Federal excise taxes are imposed upon various types of 
tobacco products and cigarette papers and tubes.\23\ Tobacco 
products are cigars, cigarettes, smokeless tobacco, pipe 
tobacco, and roll-your-own tobacco. A ``cigar'' is any roll of 
tobacco wrapped in leaf tobacco or in any substance containing 
tobacco, other than any roll of tobacco which is a cigarette. 
The term ``cigarette'' includes (i) any roll of tobacco wrapped 
in paper or in any substance not containing tobacco; and (ii) 
any roll of tobacco wrapped in any substance containing tobacco 
which, because of its appearance, the type of tobacco used in 
the filler, or its packaging and labeling, is likely to be 
offered to, or purchased by, consumers as a cigarette. 
``Smokeless tobacco'' is any snuff or chewing tobacco. ``Pipe 
tobacco'' is any tobacco which, because of its appearance, 
type, packaging, or labeling, is suitable for use and likely to 
be offered to, or purchased by, consumers as tobacco to be 
smoked in a pipe. ``Roll-your-own tobacco'' is any tobacco, 
which, because of its appearance, type, packaging, or labeling, 
is suitable for use and likely to be offered to, or purchased 
by, consumers as tobacco for making cigarettes. ``Cigarette 
paper'' is paper, or any other material except tobacco, 
prepared for use as a cigarette wrapper. A ``cigarette tube'' 
is cigarette paper made into a hollow cylinder for use in 
making cigarettes.\24\
---------------------------------------------------------------------------
    \23\Sec. 5701 of the Internal Revenue Code (IRC).
    \24\Sec. 5702 of the IRC.
---------------------------------------------------------------------------
    The following table lists the rates on tobacco products and 
cigarette papers and tubes.

------------------------------------------------------------------------
              Tobacco Product                   Present Law Tax Rates
------------------------------------------------------------------------
``Small cigars''' (weighing three pounds    $50.33 per thousand.
 or less per thousand)\1\.
``Large cigars''' (weighing more than       52.75 percent of
 three pounds per thousand)\2\.              manufacturer's sale price,
                                             but not more than 40.26
                                             cents per cigar.
``Small cigarettes''' (weighing three       $50.33 per thousand.
 pounds or less per thousand)\3\.
``Large cigarettes''' (weighing more than   $105.69 per thousand.
 three pounds per thousand)\4\.
Snuff\5\..................................  $1.51 per pound.\6\
Chewing tobacco\7\........................  50.33 cents per pound.
Pipe tobacco\8\...........................  $2.8311 per pound.
Roll-your-own tobacco\9\..................  $24.78 per pound.
Cigarette papers\10\......................  3.15 cents for each 50
                                             papers (or fractional part
                                             thereof).
Cigarette tubes\11\.......................  6.30 cents for each 50 tubes
                                             (or fractional part
                                             thereof).
------------------------------------------------------------------------
\1\Sec. 5701(a)(1).
\2\Sec. 5701(a)(2).
\3\Sec. 5701(b)(1).
\4\Large cigarettes more than 6.5 inches in length are taxed as small
  cigarettes, counting each 2.75 inches (or fraction thereof) of the
  length of each as one cigarette. Sec. 5701(b)(2).
\5\Sec. 5701(e)(1).
\6\Each of the tax rates on snuff, chewing tobacco, pipe tobacco, and
  roll-your-own tobacco is applied proportionately to fractional parts
  ofa pound.
\7\Sec. 5701(e)(2).
\8\Sec. 5701(f).
\9\Sec. 5701(g).
\10\Cigarette papers measuring more than 6.5 inches in length are taxed
  at the rate prescribed, counting each 2.75 inches (or fraction
  thereof) of the length of each as one cigarette paper. Sec. 5701(c).
\11\Cigarette tubes measuring more than 6.5 inches in length are taxed
  at the rate prescribed, counting each 2.75 inches (or fraction
  thereof) of the length of each as one cigarette tube. Sec. 5701(d).

    The manufacturer or importer of a tobacco product or 
cigarette paper or tube has the initial liability for the 
relevant excise tax, but the requirement to pay the tax is not 
triggered until the product is removed from the taxpayer's 
premises or, in the case of an imported product, from customs 
custody or bond. The tax is determined and paid at the time of 
removal unless the taxpayer has a deferral bond in place, in 
which case the taxes are paid on the basis of semi monthly 
return periods.\25\ Any taxpayer who is liable for a gross 
amount of taxes equal to or exceeding $5,000,000 during a 
calendar year must make deposits of tax for the following year 
by electronic funds transfer.\26\
---------------------------------------------------------------------------
    \25\Sec. 5703 of the IRC.
    \26\Sec. 5703(b) of the IRC.
---------------------------------------------------------------------------

Transfer rules and removals without tax

    Tobacco products and cigarette papers and tubes may be 
transferred between bonded premises of manufacturers of tobacco 
products and export warehouse proprietors without payment of 
the tax; the transferee is liable for the tax on the 
transferred tobacco products and papers and tubes.\27\ Tobacco 
products and cigarette papers and tubes may also be removed 
without payment of tax for exportation; the exporter is 
relieved from the tax once proof of exportation is 
obtained.\28\ Tax-paid product exported from the United States 
is eligible for drawback of the tax under certain 
conditions.\29\ Imported tobacco products may be released from 
customs custody in bulk for transfer to the bonded premises of 
a manufacturer or export warehouse proprietor without payment 
of the tax; the transferee is then responsible for the 
taxes.\30\ Generally, previously exported domestic tobacco 
products may be relanded\31\ in the United States only if they 
are transferred to the original manufacturer or to an export 
warehouse proprietor authorized by the original 
manufacturer.\32\ To prevent the diversion of tobacco products 
destined for export without payment of tax, however, packages 
bearing export marks are not allowed in the domestic 
marketplace.\33\ The tax is refunded or credited (without 
interest) for products withdrawn from the market and returned 
to bonded premises.\34\ Tax-paid products that are lost by 
casualty or certain disasters are eligible for tax refunds or 
credits.\35\
---------------------------------------------------------------------------
    \27\Sec. 5703(a) and 5704 of the IRC.
    \28\Sec. 5704(b) of the IRC.
    \29\Sec. 5706 of the IRC.
    \30\Sec. 5704(c) of the IRC.
    \31\A good is relanded if it is marked for export, but is returned 
to the United States without payment of duty. See 18 U.S.C. sec. 544.
    \32\Secs. 5754 and 5761(c) of the IRC.
    \33\Secs. 5754(a) and 5761(c) of the IRC.
    \34\Sec. 5705 of the IRC.
    \35\Secs. 5705 and 5708 of the IRC.
---------------------------------------------------------------------------

Permits and bonds

    Manufacturers and importers of tobacco products, processed 
tobacco, and proprietors of export warehouses must obtain 
permits to engage in such businesses.\36\ A permit is obtained 
by application to the Secretary. The Secretary may deny the 
application if (1) the business premises are inadequate to 
protect the revenue; (2) the activity to be carried out at the 
business premises does not meet such minimum capacity or 
activity requirements as prescribed by the Secretary; (3) the 
applicant is, by reason of his business experience, financial 
standing, or trade connections, not likely to maintain 
operations in compliance with the applicable provisions of the 
Code; (4) the applicant has been convicted of a felony 
violation of Federal or state criminal law relating to tobacco 
products, processed tobacco, cigarette paper, or cigarette 
tubes; or (5) the applicant has failed to disclose any material 
information required or made any material false statement in 
the application. In the case of a corporation, an applicant 
includes any officer, director, or principal stockholder and, 
in the case of a partnership, a partner.\37\
---------------------------------------------------------------------------
    \36\Sec. 5713(a) of the IRC.
    \37\Sec. 5712 of the IRC.
---------------------------------------------------------------------------
    A permit is conditioned upon compliance with relevant 
provisions of the Code and related regulations pertaining to 
tobacco products and cigarette papers and tubes. The Secretary 
may suspend or revoke a permit after a notice and hearing if 
the holder (1) has not in good faith complied with those rules 
or has violated any other provision of the Code involving 
intent to defraud; (2) has violated the conditions of the 
pe1mit; (3) has failed to disclose any material information 
required or made any material false statement in the permit 
application; (4) has failed to maintain the business premises 
in such a manner as to protect the revenue; (5) is, by reason 
of previous or current legal proceedings involving a felony 
violation of any other provision of Federal criminal law 
relating to tobacco products, processed tobacco, cigarette 
paper, or cigarette tubes, not likely to maintain operations in 
compliance with the applicable provisions of the Code; or (6) 
has been convicted of a felony violation of Federal or state 
criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes.\38\
---------------------------------------------------------------------------
    \38\Sec. 5713 of the IRC.
---------------------------------------------------------------------------
    A surety bond is required to be furnished by manufacturers 
of tobacco products or cigarette papers and tubes and export 
warehouse proprietors before they commence business.\39\ 
Importers are not required to post a surety bond because the 
requirement to pay the tax is triggered at the time the tobacco 
products or cigarette papers or tubes are released from customs 
custody. Prior to that time, the customs bond is applicable.
---------------------------------------------------------------------------
    \39\Sec. 5711 of the IRC.
---------------------------------------------------------------------------

Occupational tax

    An occupational tax of $1,000 per year is imposed on 
manufacturers of tobacco products, cigarette papers and tubes, 
and export warehouse proprietors.\40\ A reduced rate of $500 
per year applies to taxpayers with excise tax liability in the 
prior year of less than $500,000.\41\ Controlled groups are 
treated as a single person. Any person engaged in business 
subject to the occupational tax who willfully fails to pay the 
tax imposed is subject to a fine of not more than $5,000 or 
imprisonment of not more than two years, or both, for each such 
offense.\42\
---------------------------------------------------------------------------
    \40\Sec. 573l(a) of the IRC.
    \41\Sec. 573l(b) of the IRC.
    \42\Sec. 5731(c) of the IRC.
---------------------------------------------------------------------------

Miscellaneous rules, including operational, reporting, and 
        recordkeeping requirements

    Before removal, tobacco products, processed tobacco, and 
cigarette papers and tubes must be in packages and bear such 
marks, labels, and notices as required by the regulations.\43\ 
The Code prohibits lottery features and indecent or immoral 
material from being contained in or attached to a package of 
tobacco products or cigarette papers or tubes.\44\
---------------------------------------------------------------------------
    \43\Secs. 5723(a) and (b) of the IRC.
    \44\Secs. 5723(c) and (d) of the IRC.
---------------------------------------------------------------------------
    Manufacturers, importers, and export warehouse proprietors 
are required to keep records, file operating reports, and make 
accurate inventories as required by regulations.\45\ Tobacco 
products may be furnished by a manufacturer to its employees or 
put to experimental use without payment of tax under conditions 
set forth in regulations.\46\
---------------------------------------------------------------------------
    \45\Secs. 5721-22 and 5741 of the IRC.
    \46\Sec. 5704(a) of the IRC.
---------------------------------------------------------------------------

Fines and penalties

    The Code contains provisions relating to the purchase, 
receipt, possession, sale, or disposal of certain tobacco 
products and cigarette papers and tubes.\47\ It also imposes 
restrictions on importation of previously exported tobacco 
products.\48\ Civil and criminal penalties and forfeiture 
provisions apply for failure to comply with the tobacco 
provisions.\49\ The criminal and forfeiture provisions of 
subtitle F of the Code that apply to taxes in general also 
apply to tobacco taxes.
---------------------------------------------------------------------------
    \47\Sec. 5751 of the IRC.
    \48\Sec. 5754 of the IRC.
    \49\Secs. 5751-52 and 5761-63 of the IRC.
---------------------------------------------------------------------------
    Civil penalties apply to certain actions including the 
willful failure to comply with the duties imposed (such as 
recordkeeping and labeling), failure to pay tax, and for the 
illegal sale of tobacco products.\50\ Criminal penalties apply 
to certain actions including engaging in business unlawfully, 
failing to furnish certain information or furnishing false or 
fraudulent information, tax evasion, unlawful removal of 
tobacco products or cigarette papers or tubes, and for 
purchasing, receiving, possessing, or selling tobacco products 
or cigarette papers or tubes unlawfully.\51\ Tobacco products 
and cigarette papers and tubes are subject to forfeiture if 
they are possessed with the intent to defraud the United 
States, or are not in packaging as required under the law.\52\ 
Additional property may also be subject to forfeiture if it is 
used to engage in the manufacturing business unlawfully, or if 
the proprietor makes false or fraudulent records or reports 
with the intent to defraud the United States. Certain 
forfeited, condemned, or abandoned tobacco products or 
cigarette papers and tubes shall be disposed of in accordance 
with regulations.\53\
---------------------------------------------------------------------------
    \50\Sec . 5761 of the IRC.
    \51\Sec. 5762 of the IRC.
    \52\Sec. 5763 of the IRC.
    \53\Sec. 5753 of the IRC.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee observes that the use of nicotine products, 
such as electronic cigarettes and other vaping products, has 
increased significantly in recent years, particularly among 
teenagers and young adults. In addition, the Committee notes 
that vaping product use has been associated with many cases of 
severe lung injury, presenting a public health crisis. The 
provision is intended to discourage use of nicotine products by 
increasing the costs of such products.

                        EXPLANATION OF PROVISION

    The provision imposes a new excise tax on taxable nicotine. 
The amount of tax is the greater of:
          (i) the dollar amount specified for small cigarettes 
        in section 5701(b)(1), or
          (ii) $50.33 per 1,810 milligrams of nicotine (and a 
        proportionate tax on any fractional part thereof).
    The provision defines taxable nicotine as any nicotine 
which has been extracted, concentrated, or synthesized. 
However, the definition excludes any nicotine if the 
manufacturer or impo1ter demonstrates to the satisfaction of 
the Secretary that such nicotine will be used in a product 
which has been approved by the Food and Drug Administration for 
sale as a nicotine replacement therapy. Additionally, other 
tobacco products that are currently subject to tax shall not be 
treated as containing taxable nicotine solely because the 
nicotine naturally occurring in the tobacco from which such 
product is manufactured has been concentrated during the 
ordinary course of manufacturing.
    Under the provision, general provisions that apply to 
tobacco products, such as the (i) packaging requirements, (ii) 
provisions relating to the purchase, receipt, possession, or 
sale, and (iii) provisions relating to civil and criminal 
penalties, apply to taxable nicotine.
    Additionally, references in the Code to a manufacturer of 
tobacco products or to manufacturing tobacco products include 
references to a manufacturer of taxable nicotine or to 
manufacturing taxable nicotine, respectively. Therefore, a 
manufacturer of taxable nicotine is subject to the occupational 
tax and other requirements that apply to manufacturers of 
tobacco products. Under the provision, a manufacturer of 
taxable nicotine includes any person who extracts, 
concentrates, or synthesizes nicotine.

                             EFFECTIVE DATE

    The provision applies to articles manufactured or imported 
in calendar quarters beginning more than 90 days after the date 
of enactment.

                      III. VOTES OF THE COMMITTEE

    Pursuant to clause 3(b) of rule XIII of the Rules of the 
House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means during 
the markup consideration of H.R. 4742 on October 23, 2019.
    An amendment to the amendment in the nature of a substitute 
offered by Mr. Ferguson was ruled non-germane and Mr. Ferguson 
appealed the ruling of the Chair. Mr. Thompson 's motion to 
table the appeal of the ruling of the Chair passed by a roll 
call vote of 25 yeas to 16 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................       X   .......  .........  Mr. Brady..........  .......       X   .........
Mr. Lewis........................       X   .......  .........  Mr. Nunes..........  .......       X   .........
Mr. Doggett......................       X   .......  .........  Mr. Buchanan.......  .......       X   .........
Mr. Thompson.....................       X   .......  .........  Mr. Smith..........  .......       X   .........
Mr. Larson.......................       X   .......  .........  Mr. Marchant.......  .......       X   .........
Mr. Blumenauer...................       X   .......  .........  Mr. Reed...........  .......       X   .........
Mr. Kind.........................       X   .......  .........  Mr. Kelly..........  .......  .......  .........
Mr. Pascrell.....................       X   .......  .........  Mr. Holding........  .......       X   .........
Mr. Davis........................       X   .......  .........  Mr. Smith..........  .......       X   .........
Ms. Sanchez......................       X   .......  .........  Mr. Rice...........  .......       X   .........
Mr. Higgins......................       X   .......  .........  Mr. Schweikert.....  .......       X   .........
Ms. Sewell.......................       X   .......  .........  Ms. Walorski.......  .......       X   .........
Ms. DelBene......................       X   .......  .........  Mr. LaHood (IL)....  .......       X   .........
Ms. Chu (CA).....................       X   .......  .........  Mr. Wenstrup.......  .......       X   .........
Ms. Moore........................       X   .......  .........  Mr. Arrington......  .......       X   .........
Mr. Kildee.......................       X   .......  .........  Mr. Ferguson.......  .......       X   .........
Mr. Boyle........................       X   .......  .........  Mr. Estes..........  .......       X   .........
Mr. Beyer........................       X   .......  .........
Mr. Evans........................       X   .......  .........
Mr. Schneider....................       X   .......  .........
Mr. Suozzi.......................       X   .......  .........
Mr. Panetta......................       X   .......  .........
Ms. Murphy.......................       X   .......  .........
Mr. Gomez........................       X   .......  .........
Mr. Horsford.....................       X   .......  .........
----------------------------------------------------------------------------------------------------------------

    The amendment in the nature of a substitute to H.R. 4742 
was agreed to by voice vote (with a quorum being present).
    H.R. 4742 was agreed to by a roll call vote of 24 yeas to 
15 nays and 1 present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representative             Yea      Nay     Present      Representative      Yea      Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Neal.........................       X   .......  .........  Mr. Brady..........  .......       X   .........
Mr. Lewis........................       X   .......  .........  Mr. Nunes..........  .......  .......  .........
Mr. Doggett......................  .......  .......         X   Mr. Buchanan.......       X   .......
Mr. Thompson.....................       X   .......  .........  Mr. Smith..........  .......       X   .........
Mr. Larson.......................       X   .......  .........  Mr. Marchant.......  .......       X   .........
Mr. Blumenauer...................       X   .......  .........  Mr. Reed...........  .......       X   .........
Mr. Kind.........................       X   .......  .........  Mr. Kelly..........  .......       X   .........
Mr. Pascrell.....................       X   .......  .........  Mr. Holding........  .......       X   .........
Mr. Davis........................       X   .......  .........  Mr. Smith..........  .......       X   .........
Ms. Sanchez......................       X   .......  .........  Mr. Rice...........       X   .......
Mr. Higgins......................       X   .......  .........  Mr. Schweikert.....  .......       X   .........
Ms. Sewell.......................       X   .......  .........  Ms. Walorski.......  .......       X   .........
Ms. DelBene......................       X   .......  .........  Mr. LaHood (IL)....  .......       X   .........
Ms. Chu (CA).....................       X   .......  .........  Mr. Wenstrup.......  .......       X   .........
Ms. Moore........................       X   .......  .........  Mr. Arrington......  .......       X   .........
Mr. Kildee.......................       X   .......  .........  Mr. Ferguson.......  .......       X   .........
Mr. Boyle........................       X   .......  .........  Mr. Estes..........  .......       X   .........
Mr. Beyer........................       X   .......  .........
Mr. Evans........................       X   .......  .........
Mr. Schneider....................       X   .......  .........
Mr. Suozzi.......................       X   .......  .........
Mr. Panetta......................       X   .......  .........
Ms. Murphy.......................  .......       X   .........  ...................
Mr. Gomez........................       X   .......  .........
Mr. Horsford.....................  .......  .......  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill.
    The bill is estimated to increase Federal fiscal year 
budget receipts by $9.882 billion dollars for the period 2019 
through 2029.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Fiscal years in millions of dollars--
                        Item                         ---------------------------------------------------------------------------------------------------
                                                       2020    2021    2022    2023    2024    2025    2026    2027    2028    2029    2020-24   2020-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
Imposition of Tax on Nicotine for Use in Vaping.....     438   1,189   1,150   1,101   1,058   1,041   1,006     981     967     953     4,935     9,882
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee states that the bill 
involves no new or increased budget authority. The Committee 
further states that the bill involves no new tax expenditure.

      C. Cost Estimate Prepared by the Congressional Budget Office

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, requiring a cost estimate prepared by 
CBO, the following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 18, 2019.
Hon. Richard Neal,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed revised cost estimate for H.R. 4742, the 
Protecting American Lungs Act. This estimate supersedes the 
cost estimate for H.R. 4742 that CBO transmitted on October 31, 
2019. This estimate includes a private-sector mandate statement 
that was missing from the previous estimate, but is otherwise 
unchanged.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Bayard 
Meiser.
            Sincerely,
                                            Phillip Swagel,
                                                          Director.
    Enclosure.

    
    

    The bill would
           Impose a new excise tax on nicotine used in 
        vaping and for other purposes, which has been 
        extracted, concentrated, or synthesized, at a rate of 
        $50.33 per 1,810 milligrams of nicotine
           Make applicable to newly taxable nicotine 
        the same provisions that apply to tobacco products, 
        including packaging requirements; provisions relating 
        to purchase, receipt, possession, or sale; and 
        provisions relating to civil and criminal penalties
           Subject manufacturers of newly taxable 
        nicotine to the same occupational tax and other 
        requirements that currently apply to manufacturers of 
        tobacco products
    Estimated budgetary effects would primarily stem from
           The imposition of the new excise tax on 
        nicotine
    The Congressional Budget Act of 1974, as amended, 
stipulates that revenue estimates provided by the staff of the 
Joint Committee on Taxation (JCT) will be the official 
estimates for all tax legislation considered by Congress. As 
such, CBO incorporates those estimates into its cost estimates 
of the effects of legislation. All of the estimates for the 
provisions of H.R. 4742 were provided by JCT.
    Bill summary: H.R. 4742 would impose a new excise tax on 
nicotine used in vaping and for other purposes, which has been 
extracted, concentrated, or synthesized at a rate of the 
greater of the dollar amount specified for small cigarettes in 
26 U.S.C. 5701(b)(1) or $50.33 per 1,810 milligrams of 
nicotine. The new tax would not apply in cases where the 
manufacturer or importer demonstrates that such nicotine will 
be used in a product approved by the Food and Drug 
Administration for sale as a nicotine replacement therapy. The 
new tax would generally not apply to products already subject 
to the existing excise tax on tobacco.
    H.R. 4742 would also extend existing provisions that apply 
to tobacco products to taxable nicotine. Those provisions 
include rules relating to the packaging, purchase, receipt, 
possession, or sale of tobacco, and provisions relating to 
civil and criminal penalties. The bill would also subject 
manufacturers of taxable nicotine to the same occupational tax 
and other requirements that currently apply to manufacturers of 
tobacco products.
    Estimated Federal cost: The estimated budgetary effect of 
H.R. 4742 is shown in Table 1.

                                                                       TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 4742
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             By fiscal year, millions of dollars--
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                              2020-      2020-
                                                                 2020       2021       2022       2023       2024       2025       2026       2027       2028       2029       2024       2029
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Increases in Revenues
 
Estimated Revenues..........................................        438      1,189      1,150      1,101      1,058      1,041      1,006        981        967        953      4,935      9,882
 
                                                                    Net Decrease (-) in the Deficit From Changes in Revenues
 
Effect on the Deficit.......................................       -438     -1,189     -1,150     -1,101     -1,058     -1,041     -1,006       -981       -967       -953     -4,935     -9,882
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding.

    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation (JCT) are the official 
estimates for all tax legislation considered by the Congress. 
CBO therefore incorporates those estimates into its cost 
estimates of the effects of legislation. All of the estimates 
for the provisions of H.R. 4742 were provided by JCT.\1\
---------------------------------------------------------------------------
    \1\For JCT's estimates of the provisions, which include detail 
beyond the summary presented below, see Joint Committee on Taxation, 
Description of H.R. 4742, To amend the Internal Revenue Code of 1986 to 
impose a tax on nicotine used in vaping, etc., JCX-44-19 (October 21, 
2019) https://go.usa.gov/xpxm5.
---------------------------------------------------------------------------
    Revenues: JCT estimates that enacting H.R. 4742 would 
increase revenues by $9.9 billion over the 2020-2029 period.
    Uncertainty: These budgetary estimates are uncertain 
because they rely on underlying projections and other estimates 
that are uncertain. Specifically, they are based in part on 
CBO's economic projections for the next decade under current 
law, and on estimates of changes in taxpayers' behavior in 
response to changes in tax rules.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown above in 
Table 1.
    Increase in long-term deficits: None.
    Mandates: JCT has determined that H.R. 4742 would impose no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA).
    JCT has determined that H.R. 4742 would impose private-
sector mandates as defined in UMRA by imposing an excise tax on 
the manufacture or importation of certain nicotine products and 
by subjecting the manufacturer or importer of such taxable 
products to the special occupational tax applicable to the 
manufacturers of tobacco products. JCT estimates that the 
aggregate direct cost of the mandates would exceed the annual 
private-sector threshold established in UMRA ($164 million in 
2019, adjusted annually for inflation).
    Previous CBO estimate: This estimate supersedes the cost 
estimate for H.R. 4742 that CBO transmitted on October 31, 
2019. This estimate includes a private-sector mandate statement 
that was missing from the previous estimate, but is otherwise 
unchanged.
    Estimate prepared by: Revenues: Staff of the Joint 
Committee on Taxation and Bayard Meiser; Mandates: Staff of the 
Joint Committee on Taxation.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; Joseph Rosenberg, Deputy Assistant Director 
for Tax Analysis; John McClelland, Assistant Director for Tax 
Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee made findings and recommendations that are 
reflected in this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives is 
required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4). The Committee has determined that the bill contains two 
private sector unfunded mandates: (i) it imposes an excise tax 
on the manufacture or importation of taxable nicotine; and (ii) 
it subjects manufacturers of taxable nicotine to the 
occupational tax applicable to manufacturers of tobacco 
products. The Committee has determined that the bill does not 
impose a Federal intergovernmental mandate on State, local, or 
tribal governments.

            D. Applicability of House Rule XXI, Clause 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``It shall not be in 
order to consider a bill, joint resolution, amendment, or 
conference report carrying a retroactive Federal income tax 
rate increase.'' The Committee, after careful review, states 
that the bill does not involve any retroactive Federal income 
tax rate increase within the meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of Pub. L. No. 105-266, the Internal 
Revenue Service Restructuring and Reform Act of 1998 (the 
``RRA''), requires the staff of the Joint Committee on Taxation 
(in consultation with the Internal Revenue Service and the 
Treasury Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the RRA because the bill 
contains no provision that amends the Internal Revenue Code of 
1986 and has ``widespread applicability'' to individuals or 
small businesses within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
to Congress pursuant to section 21 of Pub. L. No. 111-139; or 
(3) a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance, published 
pursuant to section 6104 of title 31, United States Code.

                              H. Hearings

    In compliance with Sec. 103(i) of H. Res. 6 (116th 
Congress) (1) the following hearings were used to develop or 
consider H.R. 4742:
    On October 16, 2019, the Committee on Appropriations held a 
subcommittee hearing entitled, ``E-cigarettes: An Emerging 
Threat to Public Health.''
    On Wednesday, October 16, 2019 the Committee on Energy and 
Commerce held a subcommittee hearing entitled, ``Legislation to 
Reverse the Youth Tobacco Epidemic.''
    On September 24, 2019, the Committee on Oversight and 
Reform held a subcommittee hearing entitled, ``Don't Vape: 
Examining the Outbreak of Lung Disease and CDC's urgent Warning 
Not to Use E-Cigarettes.''
    On July 25, 2019, the Committee on Oversight and Reform 
held a subcommittee hearing entitled ``Examining JUUL's Role in 
the Youth Nicotine Epidemic: Part II.''
    On July 24, 2019, the Committee on Oversight and Reform 
held a subcommittee hearing entitled, `` Examining JUUL's Role 
in the Youth Nicotine Epidemic: Part I.''

            VI. CHANGES IN EXISTING LAW PROPOSED BY THE BILL


         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986



           *       *       *       *       *       *       *
Subtitle E--Alcohol, Tobacco, and Certain Other Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 52--TOBACCO PRODUCTS AND CIGARETTE PAPERS AND TUBES

           *       *       *       *       *       *       *


Subchapter A--DEFINITIONS; RATE AND PAYMENT OF TAX; EXEMPTION FROM TAX; 
AND REFUND AND DRAWBACK OF TAX

           *       *       *       *       *       *       *


SEC. 5701. RATE OF TAX.

  (a) Cigars.--On cigars, manufactured in or imported into the 
United States, there shall be imposed the following taxes:
          (1) Small cigars.--On cigars, weighing not more than 
        3 pounds per thousand, $50.33 per thousand;
          (2) Large cigars.--On cigars weighing more than 3 
        pounds per thousand, a tax equal to 52.75 percent of 
        the price for which sold but not more than 40.26 cents 
        per cigar.
Cigars not exempt from tax under this chapter which are removed 
but not intended for sale shall be taxed at the same rate as 
similar cigars removed for sale.
  (b) Cigarettes.--On cigarettes, manufactured in or imported 
into the United States, there shall be imposed the following 
taxes:
          (1) Small cigarettes.--On cigarettes, weighing not 
        more than 3 pounds per thousand, $50.33 per thousand;
          (2) Large cigarettes.--On cigarettes, weighing more 
        than 3 pounds per thousand, $105.69 per thousand; 
        except that, if more than 61/2 inches in length, they 
        shall be taxable at the rate prescribed for cigarettes 
        weighing not more than 3 pounds per thousand, counting 
        each 23/4 inches, or fraction thereof, of the length of 
        each as one cigarette.
  (c) Cigarette Papers.--On cigarette papers, manufactured in 
or imported into the United States, there shall be imposed a 
tax of 3.15 cents for each 50 papers or fractional part 
thereof; except that, if cigarette papers measure more than 61/
2 inches in length, they shall be taxable at the rate 
prescribed, counting each 23/4 inches, or fraction thereof, of 
the length of each as one cigarette paper.
  (d) Cigarette Tubes.--On cigarette tubes, manufactured in or 
imported into the United States, there shall be imposed a tax 
of 6.30 cents for each 50 tubes or fractional part thereof, 
except that if cigarette tubes measure more than 61/2 inches in 
length, they shall be taxable at the rate prescribed, counting 
each 23/4 inches, or fraction thereof, of the length of each as 
one cigarette tube.
  (e) Smokeless Tobacco.--On smokeless tobacco, manufactured in 
or imported into the United States, there shall be imposed the 
following taxes:
          (1) Snuff.--On snuff, $1.51 per pound and a 
        proportionate tax at the like rate on all fractional 
        parts of a pound.
          (2) Chewing tobacco.--On chewing tobacco, 50.33 cents 
        per pound and a proportionate tax at the like rate on 
        all fractional parts of a pound.
  (f) Pipe Tobacco.--On pipe tobacco, manufactured in or 
imported into the United States, there shall be imposed a tax 
of $2.8311 cents per pound (and a proportionate tax at the like 
rate on all fractional parts of a pound).
  (g) Roll-Your-Own Tobacco.--On roll-your-own tobacco, 
manufactured in or imported into the United States, there shall 
be imposed a tax of $24.78 per pound (and a proportionate tax 
at the like rate on all fractional parts of a pound).
  (h) Nicotine.--On taxable nicotine, manufactured in or 
imported into the United States, there shall be imposed a tax 
equal to the dollar amount specified in section 5701(b)(1) (or, 
if greater, $50.33) per 1,810 milligrams of nicotine (and a 
proportionate tax at the like rate on any fractional part 
thereof).
  [(h)] (i) Imported Tobacco Products and Cigarette Papers and 
Tubes.--The taxes imposed by this section on tobacco products 
and cigarette papers and tubes imported into the United States 
shall be in addition to any import duties imposed on such 
articles, unless such import duties are imposed in lieu of 
internal revenue tax.

SEC. 5702. DEFINITIONS.

  When used in this chapter--
  (a) Cigar.--``Cigar'' means any roll of tobacco wrapped in 
leaf tobacco or in any substance containing tobacco (other than 
any roll of tobacco which is a cigarette within the meaning of 
subsection (b)(2)).
  (b) Cigarette.--``Cigarette'' means--
          (1) any roll of tobacco wrapped in paper or in any 
        substance not containing tobacco, and
          (2) any roll of tobacco wrapped in any substance 
        containing tobacco which, because of its appearance, 
        the type of tobacco used in the filler, or its 
        packaging and labeling, is likely to be offered to, or 
        purchased by, consumers as a cigarette described in 
        paragraph (1).
  (c) Tobacco products.--``Tobacco products'' means cigars, 
cigarettes, smokeless tobacco, pipe tobacco, [and roll-your-own 
tobacco] roll-your-own tobacco, and taxable nicotine.
  (d) Manufacturer of tobacco products.--``Manufacturer of 
tobacco products'' means any person who manufactures cigars, 
cigarettes, smokeless tobacco, pipe tobacco, or roll-your-own 
tobacco, except that such term shall not include--
          (1) a person who produces cigars, cigarettes, 
        smokeless tobacco, pipe tobacco, or roll-your-own 
        tobacco solely for the person's own personal 
        consumption or use, and
          (2) a proprietor of a customs bonded manufacturing 
        warehouse with respect to the operation of such 
        warehouse.
Such term shall include any person who for commercial purposes 
makes available for consumer use (including such consumer's 
personal consumption or use under paragraph (1)) a machine 
capable of making cigarettes, cigars, or other tobacco 
products. A person making such a machine available for consumer 
use shall be deemed the person making the removal as defined by 
subsection (j) with respect to any tobacco products 
manufactured by such machine. A person who sells a machine 
directly to a consumer at retail for a consumer's personal home 
use is not making a machine available for commercial purposes 
if such machine is not used at a retail premises and is 
designed to produce tobacco products only in personal use 
quantities.
  (e) Cigarette paper.--``Cigarette paper'' means paper, or any 
other material except tobacco, prepared for use as a cigarette 
wrapper.
  (f) Cigarette tube.--``Cigarette tube'' means cigarette paper 
made into a hollow cylinder for use in making cigarettes.
  (g) Manufacturer of cigarette papers and tubes.--
``Manufacturer of cigarette papers and tubes'' means any person 
who manufactures cigarette paper, or makes up cigarette paper 
into tubes, except for his own personal use or consumption.
  (h) Export warehouse.--``Export warehouse'' means a bonded 
internal revenue warehouse for the storage of tobacco products 
or cigarette papers or tubes or any processed tobacco, upon 
which the internal revenue tax has not been paid, for 
subsequent shipment to a foreign country, Puerto Rico, the 
Virgin Islands, or a possession of the United States, or for 
consumption beyond the jurisdiction of the internal revenue 
laws of the United States.
  (i) Export warehouse proprietor.--``Export warehouse 
proprietor'' means any person who operates an export warehouse.
  (j) Removal or remove.--``Removal'' or ``remove'' means the 
removal of tobacco products or cigarette papers or tubes, or 
any processed tobacco, from the factory or from internal 
revenue bond under section 5704, as the Secretary shall by 
regulation prescribe, or release from customs custody, and 
shall also include the smuggling or other unlawful importation 
of such articles into the United States.
  (k) Importer.--``Importer'' means any person in the United 
States to whom nontaxpaid tobacco products or cigarette papers 
or tubes, or any processed tobacco, manufactured in a foreign 
country, Puerto Rico, the Virgin Islands, or a possession of 
the United States are shipped or consigned; any person who 
removes cigars or cigarettes for sale or consumption in the 
United States from a customs bonded manufacturing warehouse; 
and any person who smuggles or otherwise unlawfully brings 
tobacco products or cigarette papers or tubes, or any processed 
tobacco, into the United States.
  (l) Determination of price on cigars.--In determining price 
for purposes of section 5701(a)(2)--
          (1) there shall be included any charge incident to 
        placing the article in condition ready for use,
          (2) there shall be excluded--
                  (A) the amount of the tax imposed by this 
                chapter or section 7652, and
                  (B) if stated as a separate charge, the 
                amount of any retail sales tax imposed by any 
                State or political subdivision thereof or the 
                District of Columbia, whether the liability for 
                such tax is imposed on the vendor or vendee, 
                and
          (3) rules similar to the rules of section 4216(b) 
        shall apply.
  (m) Definitions relating to smokeless tobacco.--
          (1) Smokeless tobacco.--The term ``smokeless 
        tobacco'' means any snuff or chewing tobacco.
          (2) Snuff.--The term ``snuff'' means any finely cut, 
        ground, or powdered tobacco that is not intended to be 
        smoked.
          (3) Chewing tobacco.--The term ``chewing tobacco'' 
        means any leaf tobacco that is not intended to be 
        smoked.
  (n) Pipe tobacco.--The term ``pipe tobacco'' means any 
tobacco which, because of its appearance, type, packaging, or 
labeling, is suitable for use and likely to be offered to, or 
purchased by, consumers as tobacco to be smoked in a pipe.
  (o) Roll-your-own tobacco.--The term ``roll-your-own 
tobacco'' means any tobacco which, because of its appearance, 
type, packaging, or labeling, is suitable for use and likely to 
be offered to, or purchased by, consumers as tobacco for making 
cigarettes or cigars, or for use as wrappers thereof.
  (p) Manufacturer of processed tobacco.--
          (1) In general.--The term ``manufacturer of processed 
        tobacco'' means any person who processes any tobacco 
        other than tobacco products.
          (2) Processed tobacco.--The processing of tobacco 
        shall not include the farming or growing of tobacco or 
        the handling of tobacco solely for sale, shipment, or 
        delivery to a manufacturer of tobacco products or 
        processed tobacco.
  (q) Taxable Nicotine.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the term ``taxable nicotine'' means any 
        nicotine which has been extracted, concentrated, or 
        synthesized.
          (2) Exception for fda-approved nicotine replacement 
        therapies.--Such term shall not include any nicotine if 
        the manufacturer or importer thereof demonstrates to 
        the satisfaction of the Secretary that such nicotine 
        will be used in a product which has been approved by 
        the Food and Drug Administration for sale as a nicotine 
        replacement therapy.
          (3) Coordination with taxation of other tobacco 
        products.--Cigars, cigarettes, smokeless tobacco, pipe 
        tobacco, and roll-your-own tobacco shall not be treated 
        as containing taxable nicotine solely because the 
        nicotine naturally occurring in the tobacco from which 
        such product is manufactured has been concentrated 
        during the ordinary course of manufacturing.
  (r) Manufacturer of Taxable Nicotine.--
          (1) In general.--Any person who extracts, 
        concentrates, or synthesizes nicotine shall be treated 
        as a manufacturer of taxable nicotine (and as 
        manufacturing such taxable nicotine).
          (2) Application of rules related to manufacturers of 
        tobacco products.--Any reference to a manufacturer of 
        tobacco products, or to manufacturing tobacco products, 
        shall be treated as including a reference to a 
        manufacturer of taxable nicotine, or to manufacturing 
        taxable nicotine, respectively.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    A frequent refrain from Members on the other side of the 
dais has been that all bills should go through ``regular 
order''; in other words, there should be a hearing record and 
careful study before moving forward with legislation. We 
Committee Republicans agree. That is why this committee held 
over 40 hearings on tax reform before moving forward with the 
most consequential tax overhaul in a generation. We heard from 
policy experts and economists, leaders of businesses of all 
sizes, and other stakeholders. Many of us served on working 
groups that drilled down into various aspects of tax policy and 
participated in roundtable discussions. And yet, as we are 
moving forward this bill that imposes a nearly $10 billion tax 
on products we know little about, there is no Ways and Means 
Committee hearing record to turn to and no subject matter 
expert to consult.
    Clearly, there is bipartisan concern on this Committee 
about the dangers of vaping, especially among our youth. Many 
of us are parents. All of us represent communities that have 
been touched in some way by this issue. And none of us wants to 
see a single person hurt, injured, or worse by vaping. That is 
a solid foundation on which to begin a serious discussion about 
vaping, but this process--or lack thereof--has robbed us of 
that important discussion. Instead, we are left with very 
important questions left unanswered. To name a few, is vaping 
more or less dangerous than more traditional forms of tobacco 
consumption? By taxing the nicotine content of vaping products, 
is it possible we will encourage Americans to turn to more 
health-threatening forms of tobacco consumption, or worse, 
vaping products that contain dangerous illicit drugs like THC? 
What unintended consequences might we be creating? Is it 
possible we will stoke more black market activity with this 
tax, the kind of activity that has been linked to the most 
tragic and deadly cases of vaping? And of the 20 jurisdictions 
that have imposed taxes on vaping products, why have none of 
them used the standard in this bill of taxing nicotine content 
by weight?
    These are questions that should be answered, and yet the 
Majority has adopted a ``tax first, ask questions later'' 
posture that does little to illuminate the debate or help us 
design a policy that truly helps the people at risk of vaping-
related illnesses.
    We do not doubt the sincerity and good intentions of our 
colleagues who support this tax. However, the fact that the 
Majority did not even allow the Committee to vote on an 
amendment by Dr. Ferguson that would have directed the proceeds 
of the tax to a trust fund for research, treatment, and 
prevention of vaping-related illnesses was unfortunate and 
could lead some to believe that the tax is intended merely as a 
``money grab'' rather than a real solution to a serious public 
health issue.
    This Committee should take its constitutional taxing power 
seriously. Sadly, rushing through a bill with two days' notice 
and not a single hearing does not serve this Committee, or more 
importantly, the people we're trying to help. It is time to 
start over and do this right. This issue is too important for 
us to do less.
    We Committee Republicans are eager to work with our 
colleagues in a bipartisan way on genuine solutions to this 
issue. We hope we will still have an opportunity to do just 
that.

                                   Kevin Brady,
                                           Republican Leader, Committee 
                                               on Ways and Means.