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S. 1834 (110th): HEALTH Act

The text of the bill below is as of Jul 19, 2007 (Introduced).


II

110th CONGRESS

1st Session

S. 1834

IN THE SENATE OF THE UNITED STATES

July 19, 2007

introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To improve the health of Americans through the gradual elimination of tobacco products.

1.

Short title; table of contents

(a)

Short title

This Act may be cited as the Help End Addiction to Lethal Tobacco Habits Act or the HEALTH Act.

(b)

Table of contents

The table of contents of this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—Requirements on manufacturers

Sec. 101. Reports.

Sec. 102. Tobacco testing.

Sec. 103. Warning labels.

TITLE II—Tobacco use surveys

Sec. 201. Tobacco use survey.

TITLE III—Reduction in United States tobacco users

Sec. 301. Amendment to the Public Health Service Act.

TITLE IV—Revenue provisions

Sec. 401. Increase in excise tax rate on tobacco products based on relative health risk.

TITLE V—Cessation and prevention

Sec. 501. Food and Drug Administration Tobacco Risk Classification Panel.

Sec. 502. Authority to prohibit nicotine.

Sec. 503. Counter-advertising.

Sec. 504. Medicare coverage of counseling for cessation of tobacco use.

Sec. 505. Medicare coverage of tobacco cessation pharmacotherapy.

Sec. 506. Tobacco cessation for Federal employee health benefits plans.

Sec. 507. Matching grants for States that use a significant portion of master settlement agreement funds for tobacco control and cessation.

I

Requirements on manufacturers

101.

Reports

(a)

Federal cigarette labeling

Section 7(a) of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1335a(a)) is amended by striking which does not identify the company which uses the ingredients or the brand of cigarettes which contain the ingredients and inserting and a specification of the quantity of nicotine and tar contained in each such product.

(b)

Smokeless tobacco

Section 7(a) of the Comprehensive Smokeless Tobacco Health Education Act of 1986 (15 U.S.C. 4403(a)(1)) is amended—

(1)

in subparagraph (A), by striking which does not identify the company which uses the ingredients or the brand of smokeless tobacco which contains the ingredients; and

(2)

in subparagraph (B), by inserting and tar after nicotine.

102.

Tobacco testing

(a)

Federal Cigarette Labeling and Advertising Act

Section 7 of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1335a) is amended by adding at the end the following:

(c)

Tobacco testing

(1)

Standards and Practices for Measuring and Analyzing Tobacco Constituents

(A)

In general

Not later than 18 months after the date of enactment of the Help End Addiction to Lethal Tobacco Habits Act, the Secretary of Commerce, acting through the Director of the National Institute of Standards and Technology and in consultation with the Secretary of Health and Human Services, shall develop and publish in the Federal Register standards and best practices for—

(i)

the sampling of tobacco and tobacco products for testing; and

(ii)

accurate measurement and analysis of tobacco constituents, including—

(I)

nicotine;

(II)

tar;

(III)

carbon monoxide; and

(IV)

any other constituent as may be necessary.

(B)

Components

The standards and best practices developed under subparagraph (A) shall address the need for—

(i)

standardized measurement and verification practices for tobacco constituent reports made by all persons under this section, taking into account—

(I)

protocols and standards currently in use by persons making such reports;

(II)

existing protocols and standards developed by members of the public health community;

(III)

the report required under subsection (b)(1)(B); and

(IV)

such other factors as the Secretary of Commerce and the Secretary of Health and Human Services determine to be appropriate;

(ii)

measurement and verification of actions taken to reduce the harm or exposure from tobacco products; and

(iii)

such other measurement and verification standards as the Secretary of Commerce and the Secretary of Health and Human Services determine to be appropriate.

(C)

Options

The standards and best practices developed under subparagraph (A) may require the measurement of the content, rather than the yield of tobacco ingredients, components, or additives.

(2)

Applicable law

To ensure that high quality information is produced, the standards and best practices developed under paragraph (1) shall conform to the guidelines established under section 515 of the Treasury and General Government Appropriations Act, 2001 (commonly known as the Data Quality Act) (44 U.S.C. 3516 note; 114 Stat. 2763A–1543), as enacted into law by section 1(a)(3) of Public Law 106–554.

(3)

Transitional measurement standards

Until such time as the standards and best practices developed under paragraph (1) are available, persons reporting to Federal Trade Commission under this section shall use—

(A)

the conditions described in the International Organization for Standardization standard ISO 3308;

(B)

the International Organization for Standardization standards 4387 to determine tar, 10315 to determine nicotine, and 8454 to determine carbon monoxide; and

(C)

the sampling specified in the International Organization for Standardization standard ISO 8243.

.

(b)

Comprehensive Smokeless Tobacco Health Education Act of 1986

Section 4 of the Comprehensive Smokeless Tobacco Health Education Act of 1986 (15 U.S.C. 4403) is amended by adding at the end the following:

(c)

Tobacco testing

(1)

Standards and Practices for Measuring and Analyzing Smokeless Tobacco Constituents

(A)

In general

Not later than 18 months after the date of enactment of the Help End Addiction to Lethal Tobacco Habits Act, the Secretary of Commerce, acting through the Director of the National Institute of Standards and Technology and in consultation with the Secretary of Health and Human Services, shall develop and publish in the Federal Register standards and best practices for—

(i)

the sampling of smokeless tobacco and tobacco products for testing; and

(ii)

accurate measurement and analysis of smokeless tobacco constituents, including—

(I)

nicotine;

(II)

tar;

(III)

nitrosamines; and

(IV)

any other constituent as may be necessary.

(B)

Components

The standards and best practices developed under subparagraph (A) shall address the need for—

(i)

standardized measurement and verification practices for tobacco constituent reports made by all persons under this section, taking into account—

(I)

protocols and standards currently in use by persons making such reports;

(II)

existing protocols and standards developed by members of the public health community;

(III)

the report required under subsection (b)(1)(B); and

(IV)

such other factors as the Secretary of Commerce and the Secretary of Health and Human Services determine to be appropriate;

(ii)

measurement and verification of actions taken to reduce the harm or exposure from smokeless tobacco products; and

(iii)

such other measurement and verification standards as the Secretary of Commerce and the Secretary of Health and Human Services determine to be appropriate.

(C)

Options

The standards and best practices developed under subparagraph (A) may require the measurement of the content, rather than the yield of tobacco ingredients, components, or additives.

(2)

Applicable law

To ensure that high quality information is produced, the standards and best practices developed under paragraph (1) shall conform to the guidelines established under section 515 of the Treasury and General Government Appropriations Act, 2001 (commonly known as the Data Quality Act) (44 U.S.C. 3516 note; 114 Stat. 2763A–1543), as enacted into law by section 1(a)(3) of Public Law 106–554.

(3)

Transitional measurement standards

Until such time as the standards and best practices developed under paragraph (1) are available, persons reporting to Federal Trade Commission under this section shall use—

(A)

the International Organization for Standardization standards 15592–3 to determine tar and 15152 to determine nicotine; and

(B)

the sampling specified in the International Organization for Standardization standard ISO 4874.

.

103.

Warning labels

(a)

Cigarette labeling and advertising warnings

(1)

In general

Section 4(a) of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333(a)) is amended—

(A)

in paragraph (1) by striking section, one of the following labels: and all that follows, and inserting the following:

section—

(A)

1 of the following labels:

  • SURGEON GENERAL’S WARNING: Smoking kills.
  • SURGEON GENERAL’S WARNING: Smoking seriously harms you and others around you.
  • SURGEON GENERAL’S WARNING: Smokers die younger.
  • SURGEON GENERAL’S WARNING: Smoking clogs the arteries and causes heart attacks and strokes.
  • SURGEON GENERAL’S WARNING: Cigarettes cause fatal lung cancer.
  • SURGEON GENERAL’S WARNING: Smoking when pregnant harms your baby.
  • SURGEON GENERAL’S WARNING: Protect children: don't make them breathe your smoke.
  • SURGEON GENERAL’S WARNING: Smoking is highly addictive, don't start.
  • SURGEON GENERAL’S WARNING: Stopping smoking reduces the risk of fatal heart and lung diseases.
  • SURGEON GENERAL’S WARNING: Smoking can cause a slow and painful death.
  • SURGEON GENERAL’S WARNING: Get help now to stop smoking: (telephone/postal address/Internet address/consult your doctor/pharmacist).
  • SURGEON GENERAL’S WARNING: Smoking may reduce the blood flow and causes impotence.
  • SURGEON GENERAL’S WARNING: Smoking causes aging of the skin.
  • SURGEON GENERAL’S WARNING: Smoking can damage the sperm and decreases fertility.
  • SURGEON GENERAL’S WARNING: Smoke contains the toxic chemicals benzene, nitrosamines, formaldehyde, and hydrogen cyanide.
  • SURGEON GENERAL’S WARNING: Cigarettes are addictive; and
(B)

a label on 1 side of the package indicating the tar, nicotine, and carbon monoxide yields of the cigarettes so that at least 10 percent of the corresponding surface is covered, such label to be accompanied by the following statements: Nicotine is addictive., and Tar and Carbon Monoxide are harmful; there is no safe level..

;

(B)

in paragraph (2) by striking section, one of the following labels: and all that follows, and inserting the following:

section—

(A)

1 of the following labels:

  • SURGEON GENERAL’S WARNING: Smoking kills.
  • SURGEON GENERAL’S WARNING: Smoking seriously harms you and others around you.
  • SURGEON GENERAL’S WARNING: Smokers die younger.
  • SURGEON GENERAL’S WARNING: Smoking clogs the arteries and causes heart attacks and strokes.
  • SURGEON GENERAL’S WARNING: Cigarettes cause fatal lung cancer.
  • SURGEON GENERAL’S WARNING: Smoking when pregnant harms your baby.
  • SURGEON GENERAL’S WARNING: Protect children: don't make them breathe your smoke.
  • SURGEON GENERAL’S WARNING: Smoking is highly addictive, don't start.
  • SURGEON GENERAL’S WARNING: Stopping smoking reduces the risk of fatal heart and lung diseases.
  • SURGEON GENERAL’S WARNING: Smoking can cause a slow and painful death.
  • SURGEON GENERAL’S WARNING: Get help now to stop smoking: (telephone/postal address/Internet address/consult your doctor/pharmacist).
  • SURGEON GENERAL’S WARNING: Smoking may reduce the blood flow and causes impotence.
  • SURGEON GENERAL’S WARNING: Smoking causes aging of the skin.
  • SURGEON GENERAL’S WARNING: Smoking can damage the sperm and decreases fertility.
  • SURGEON GENERAL’S WARNING: Smoke contains the toxic chemicals benzene, nitrosamines, formaldehyde, and hydrogen cyanide.
  • SURGEON GENERAL’S WARNING: Cigarettes are addictive; and
(B)

a label on the advertisement indicating the tar, nicotine, and carbon monoxide yields of the cigarettes so that at least 10 percent of the surface is covered, such label to be accompanied by the following statements: Nicotine is addictive., and Tar and Carbon Monoxide are harmful; there is no safe level..

; and

(C)

in paragraph (3) by striking section, one of the following labels: and all that follows, and inserting the following:

section—

(A)

1 of the following labels:

  • SURGEON GENERAL’S WARNING: Smoking kills.
  • SURGEON GENERAL’S WARNING: Smoking seriously harms you and others around you.
  • SURGEON GENERAL’S WARNING: Smokers die younger.
  • SURGEON GENERAL’S WARNING: Smoking clogs the arteries and causes heart attacks and strokes.
  • SURGEON GENERAL’S WARNING: Cigarettes cause fatal lung cancer.
  • SURGEON GENERAL’S WARNING: Smoking when pregnant harms your baby.
  • SURGEON GENERAL’S WARNING: Protect children: don't make them breathe your smoke.
  • SURGEON GENERAL’S WARNING: Smoking is highly addictive, don't start.
  • SURGEON GENERAL’S WARNING: Stopping smoking reduces the risk of fatal heart and lung diseases.
  • SURGEON GENERAL’S WARNING: Smoking can cause a slow and painful death.
  • SURGEON GENERAL’S WARNING: Get help now to stop smoking: (telephone/postal address/Internet address/consult your doctor/pharmacist).
  • SURGEON GENERAL’S WARNING: Smoking may reduce the blood flow and causes impotence.
  • SURGEON GENERAL’S WARNING: Smoking causes aging of the skin.
  • SURGEON GENERAL’S WARNING: Smoking can damage the sperm and decreases fertility.
  • SURGEON GENERAL’S WARNING: Smoke contains the toxic chemicals benzene, nitrosamines, formaldehyde, and hydrogen cyanide.
  • SURGEON GENERAL’S WARNING: Cigarettes are addictive; and
(B)

a label on the advertisement indicating the tar, nicotine, and carbon monoxide yields of the cigarettes so that at least 10 percent of the surface is covered, such label to be accompanied by the following statements: Nicotine is addictive., and Tar and Carbon Monoxide are harmful; there is no safe level..

.

(2)

Location and graphics

Section 4(b) of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333(b)) is amended—

(A)

in paragraph (1), by striking shall be located in the place label statements were and all that follows through the end and inserting “shall:

(A)

Occupy at least 50 percent of the front and rear panels of the package on which it is displayed and printed directly on the package underneath the cellophane or other clear wrapping. All text of the warning described in such paragraph (1) shall be in conspicuous and legible 17-point type, unless the text of the label statement would occupy more than 70 percent of such area, in which case the text may be in a smaller conspicuous and legible type size. The text shall be black on a white background, or white on a black background, in a manner that contrasts, by typography, layout, or color, with all other printed material on the package.

(B)

Be accompanied by color graphics depicting the negative health consequences of smoking.

;

(B)

in paragraph (2), by adding at the end the following: Each label statement shall be accompanied by color graphics depicting the negative health consequences of smoking.; and

(C)

in paragraph (3), by adding at the end the following: Each label statement shall be accompanied by color graphics depicting the negative health consequences of smoking..

(3)

Label rotation

Section 4(c)(1) of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333(c)(1)) is amended—

(A)

by striking quarterly; and

(B)

by inserting before the period at the end in equal distribution and display..

(b)

Smokeless tobacco labels and advertising warnings

Section 3(a)(1) of the Comprehensive Smokeless Tobacco Health Education Act of 1986 (15 U.S.C. 4402(a)(1)) is amended—

(1)

in subsection (a)(1), by striking Act, one of the following labels: and all that follows, and inserting the following:

Act—

(A)

1 of the following labels:

  • WARNING: Smokeless tobacco is addictive.
  • WARNING: This product causes mouth diseases.
  • WARNING: Use of this product can cause cancer.
  • WARNING: This tobacco product can damage your health and is addictive.
  • WARNING: This product contains cancer-causing agents.
  • WARNING: Tobacco can kill.
  • WARNING: Tobacco users die younger.
  • WARNING: Tobacco use when pregnant harms your baby.
  • WARNING: Tobacco is highly addictive, don't start.
  • WARNING: Get help now to stop using tobacco: (telephone/postal address/Internet address/consult your doctor/pharmacist).
  • WARNING: Tobacco contains the toxic chemicals benzene, nitrosamines, formaldehyde, and hydrogen cyanide; and
(B)

a label on 1 side of the package indicating the tar, nicotine, and nitrosamines yields of the products so that at least 10 percent of the corresponding surface is covered, such label to be accompanied by the following statements: Nicotine is addictive., and Tar and Nitrosamines are harmful; there is no safe level..

;

(2)

by striking subsection (b) and inserting the following:

(b)

Label format

Each label statement required by paragraph (1) shall:

(1)

Be located on the 2 principal display panels of the package, but not the bottom, and each label statement shall comprise at least 40 percent of such panels of the package. All of the text of the warning described in paragraph (1) shall appear in 17 point conspicuous and legible type in a manner that contrasts by typography, layout, or color, with all other printed material on the package. The text of the label statement shall be black on a white background, or white on a black background, in an alternating fashion under the plan submitted under subsection (d), except that if the text of a label statement would occupy more than 70 percent of the area specified by subparagraph (A), such text may appear in a smaller type size.

; and

(3)

in subsection (c)(2)—

(A)

by striking every 4 months; and

(B)

by inserting before the period at the end in equal distribution and display.

II

Tobacco use surveys

201.

Tobacco use survey

(a)

Annual survey

Not later than January 1, 2008, and annually thereafter, the Secretary shall conduct a survey to support the calculation of allowances under title XXX of the Public Health Service Act (as added by section 301). Such survey shall—

(1)

determine—

(A)

the percentage of all individuals who used a tobacco product within the 30-day period prior to the conduct of the survey; and

(B)

the percentage of individuals identified under paragraph (1) who identify each brand of each type of tobacco product as the usual brand smoked or used within such 30-day period;

(2)

be conducted in coordination with existing survey activities;

(3)

be based on a nationally representative sample of at least 200,000 completed interviews of individuals;

(4)

be a household-based in person survey; and

(5)

contain any other elements as may be necessary.

(b)

Existing data sources

The Secretary may combine, replace or otherwise alter the following existing surveys to collect needed data in the most efficient and cost-effective manner:

(1)

The National Health Interview Survey.

(2)

The National Survey on Drug Use and Health under section 505 of the Public Health Service Act (42 U.S.C. 290aa–4).

(3)

The Behavior Risk Factor Surveillance Survey.

(4)

The Monitoring the Future study.

(5)

The Youth Risk Behavior Surveillance System.

(6)

The current Population Survey Tobacco Use Supplement.

III

Reduction in United States tobacco users

301.

Amendment to the Public Health Service Act

The Public Health Service Act (42 U.S.C. 201 et seq.) is amended by adding at the end the following:

XXX

Reduction in United States tobacco users

3001.

Purpose

It is the purpose of this title to—

(1)

reduce the adverse health effects of tobacco use through reductions in the annual size of the tobacco market from 2006 levels in the United States;

(2)

effectuate such reductions by requiring compliance by tobacco manufacturers with prescribed user limitations by specified deadlines, which limitations may be met through alternative methods of compliance provided by a market share allocation and transfer system; and

(3)

encourage tobacco control and prevention, and smoking cessation.

3002.

Definitions

In this title:

(1)

Actual 2006 tobacco users

The term actual 2006 tobacco users for affected brands means the total number of United States tobacco users in calendar year 2006 as determined using data reported in surveys under title II of the Help End Addiction to Lethal Tobacco Habits Act.

(2)

Affected brand

The term affected brand means a brand marketed by an affected manufacturer that is subject to tobacco user reduction requirements or limitations under this title.

(3)

Affected manufacturer

The term affected manufacturer means a manufacturer of tobacco products (as defined in section 5702 of the Internal Revenue Code of 1986) who applies for a permit under section 40.62 of title 26, Code of Federal Regulations (or successor regulations).

(4)

Allowable 2006 tobacco users

The term allowable 2006 tobacco users means a federally enforceable limitation on the number of United States tobacco users applicable to the brand.

(5)

Allowance

The term allowance means an authorization, allocated to an affected brand by the Secretary under this title, to sell to, during or after a specified calendar year, 1 United States tobacco user.

(6)

Baseline

The term baseline means the number of United States tobacco users of an affected brand, calculated as follows:

(A)

For each affected brand that was in commercial operation as of January 1, 2007, the baseline shall be the annual average number of United States tobacco users of the brand during calendar years 2004, 2005, and 2006, as determined using data recorded by the Department of Health and Human Services pursuant to surveys under the following:

(i)

The National Health Interview Survey.

(ii)

The National Survey on Drug Use and Health under section 505 of the Public Health Service Act (42 U.S.C. 290aa–4).

(iii)

The Behavior Risk Factor Surveillance Survey.

(iv)

The Monitoring the Future study.

(v)

The Youth Risk Behavior Surveillance System.

(vi)

The current Population Survey Tobacco Use Supplement.

(B)

For any affected brand for which such survey data was not collected, the baseline shall be the annual average number of tobacco users for those years, as calculated pursuant to a method which the Secretary shall prescribe by regulation not later than 9 months after the date of enactment of this title.

(C)

The Secretary may, upon application or on his or her own motion, supplement data needed in support of this title and correct any factual errors in data from which baselines have been calculated. Corrected data shall be used for purposes of issuing allowances under the title. Such corrections shall not be subject to judicial review, nor shall the failure of the Secretary to correct an alleged factual error in such reports be subject to judicial review.

(7)

Brand

The term brand has the meaning given such term in section 5702 of the Internal Revenue Code of 1986.

(8)

Compliance plan

The term compliance plan means a schedule and description of the method or methods for compliance and certification by the owner or operator that the manufacturer is in compliance with the requirements of this title.

(9)

Designated representative

The term designated representative means a responsible person or official authorized by the owner or operator of an affected brand to represent the owner or operator in matters pertaining to the holding, transfer, or disposition of allowances allocated to an affected brand, and the submission of and compliance with permits, permit applications, and compliance plans for the affected brand.

(10)

Existing brand

The term existing brand means a brand of tobacco product that commenced commercial distribution before the date of enactment of this title.

(11)

New brand

The term new brand means a brand of tobacco product that commences commercial distribution on or after the date of enactment of this title.

(12)

Permitting authority

The term permitting authority means the Alcohol and Tobacco Tax and Trade Bureau.

(13)

United States tobacco user

The term United States tobacco user means a person in the United States who uses a tobacco product (as defined in section 5702 of the Internal Revenue Code of 1986) as determined using surveys described in title II of the Help End Addiction to Lethal Tobacco Habits Act.

3003.

United States tobacco user allowance program for existing and new brands

(a)

Allocations of annual allowances for existing and new brands

(1)

In general

For the United States tobacco user limitation programs under this title, the Secretary shall allocate annual allowances for the affected brand, to be held or distributed by the designated representative of the owner or operator of each affected brand of an affected manufacturer in accordance with this title, in an amount that is equal to the annual United States tobacco user limitation calculated under this section and sections 3004, 3005, or 3007, except as otherwise specifically provided elsewhere in this title.

(2)

Limitation

(A)

In general

Except as provided in section 3007, beginning on January 1, 2015, the Secretary shall not allocate annual allowances pursuant to section 3005 in such an amount as would result in total annual allowances in excess of 30,000,000. For purposes of the preceding sentence, the Secretary shall not take into account unused allowances carried forward by owners and operators of affected brands or by other persons holding such allowances, following the year for which they were allocated.

(B)

Pro rata reductions

If determined necessary to comply with the limitation imposed under subparagraph (A), the Secretary shall reduce, on a pro rata basis, the Phase II allowance allocations for each affected brand, subject to the requirements of section 3005.

(3)

Annual allocation

The Secretary shall allocate allowances for each affected brand of an affected manufacturer annually, as provided for in this section, section 3004, and section 3005.

(4)

Removal of brands

Except as provided for in section 3007, the removal of an existing affected brand or manufacturer from commercial operation at any time after the date of the enactment of this title shall not terminate or otherwise affect the allocation of allowances pursuant to section 3004 or 3005 to which the brand is entitled. Allowances shall be allocated by the Secretary without cost to the recipient.

(5)

Election

Any person who may make an election concerning the amount of allowances to be allocated to a brand or brands shall make such election and so inform the Secretary not later than March 31, 2015, in the case of an election under section 3005. If such person fails to make such election, the Secretary shall set forth for each brand owned or operated by such person, the amount of allowances reflecting the election that would, in the judgment of the Secretary, provide the greatest benefit for the owner or operator of the brand.

(b)

Allowance transfer system

(1)

In general

Allowances allocated under this title may be transferred among the designated representatives of the owners or operators of affected manufacturers under this title and any other person who holds such allowances, as provided for by the allowance system regulations promulgated under paragraph (2).

(2)

Regulations

Not later than 18 months after the date of enactment of this title, the Secretary shall promulgate regulations for purposes of paragraph (1). Such regulations shall—

(A)

provide for the establishment of the allowance system described in this section, including requirements for the allocation, transfer, and use of allowances under this title;

(B)

prohibit the use of any allowance prior to the calendar year for which the allowance was allocated; and

(C)

provide, consistent with the purposes of this title, for the identification of unused allowances, and for such unused allowances to be carried forward and added to allowances allocated in subsequent years, including allowances allocated to brands subject to Phase I requirements (as described in section 3004) which are applied to limitation requirements in Phase II (as described in section 3005); and

(D)

establish a system for issuing, recording, and tracking allowances under this section, such regulations to specify all necessary procedures and requirements for an orderly and competitive functioning of the allowance system, and all allowance allocations and transfers shall, upon recordation by the Secretary, be deemed a part of each brand's permit requirements pursuant to section 3006, without any further permit review and revision.

(3)

Certification

Transfers of allowances under this subsection shall not be effective until written certification of the transfer, signed by a responsible official of each party to the transfer, is received and recorded by the Secretary within 30 days.

(4)

Preallocation transfers

Regulations under this subsection shall permit the transfer of allowances prior to the issuance of such allowances under subsection (a). Recorded preallocation transfers shall be deducted by the Secretary from the number of allowances which would otherwise be allocated to the transferor, and added to those allowances allocated to the transferee. Preallocation transfers shall not affect the prohibition contained in this subsection against the use of allowances prior to the year for which they are allocated.

(c)

New affected brands

(1)

In general

After January 1, 2009, it shall be unlawful for a new affected brand to sell to a number of United States tobacco users in excess of the number of allowances held for the brand by the brand’s owner or operator. Such new affected brands shall not be eligible for an allocation of United States tobacco user allowances under this section. New affected brands may obtain allowances from any person, in accordance with this section.

(2)

Enforcement

The owner or operator of any new affected brand in violation of this subsection shall be liable for fulfilling the obligations specified in section 3008.

(d)

Nature of allowances

(1)

In general

An allowance allocated under this title shall be a limited authorization to sell to 1 United States tobacco user in accordance with the provisions of this title. Such allowance shall not constitute a property right. Allowances under this title, once allocated to a person by the Secretary, may be received, held, and temporarily or permanently transferred in accordance with this title (and the regulations promulgated hereunder) without regard to whether or not a permit is in effect under the permitting authority with respect to the brand for which such allowance was originally allocated and recorded.

(2)

Rules of construction

Nothing in this title or in any other provision of law shall be construed to limit the authority of the United States to terminate or limit an authorization under this title. Nothing in this section relating to allowances shall be construed as affecting the application of, or compliance with, any other provision of this title to an affected brand or manufacturer. Nothing in this section shall be construed as requiring a change of any kind in any State law regulating excise tax rates or affecting any State law regarding such State regulation or as limiting State regulation under such a State law.

(e)

Prohibitions

(1)

In general

It shall be unlawful—

(A)

for any person to hold, use, or transfer any allowance allocated under this title, except in accordance with regulations promulgated by the Secretary;

(B)

for any affected brand to sell to United States tobacco users in excess of the number of allowances held for that brand for that year by the owner or operator of the brand.

(2)

Effect of provision

Upon the allocation of allowances under this title, the prohibition contained in paragraph (1)(B) shall supersede any other United States tobacco user limitation applicable under this title to the brands for which such allowances are allocated.

(3)

Limitation

An allowance under this title may not be used prior to the calendar year for which such allowance is allocated.

(4)

Rule of construction

Nothing in this section, or in the allowance system regulations promulgated under this section, shall be construed to relieve the Secretary of the Treasury of permitting, monitoring, and enforcement obligations under this title of under the Internal Revenue Code of 1986, nor relieve affected manufacturers of their requirements and liabilities under this title or such Code.

(f)

Applicability of the antitrust laws

(1)

In general

Nothing in this section shall be construed to effect—

(A)

the applicability of the antitrust laws to the transfer, use, or sale of allowances; or

(B)

the authority of the Federal Trade Commission under any provision of law relating to unfair methods of competition or anticompetitive acts or practices.

(2)

Definition

As used in this section, the term antitrust laws means those Acts set forth in section 1 of the Clayton Act (15 U.S.C. 12).

3004.

Phase I tobacco user requirements

(a)

United States tobacco user limitations

(1)

In general

Not later than 9 months after the date of enactment of this title, the Secretary shall publish in the Federal Register a list of affected brands and their allowances for the years 2009 through 2015. Such allowances for each such brand for 2009 shall equal the product of—

(A)

the average of—

(i)

the baseline of the brand involved, divided by the total number of United States tobacco users as determined using survey data under section 201 of the Help End Addiction to Lethal Tobacco Habits Act; and

(ii)

the production of that brand produced in that year for the domestic market (as determined by the Secretary of Agriculture), divided by the total production for the domestic market for that year (as determined by the Secretary of Agriculture); and

(B)

the total number of United States tobacco users (as determined using survey data under section 201 of the Help End Addiction to Lethal Tobacco Habits Act).

(2)

Prohibition

After January 1, 2009, it shall be unlawful for any affected brand to sell to United States tobacco users in excess of the limitation determined under paragraph (1) for such brand (stated as a total number of allowances in such list for phase I), unless—

(A)

the user limitations applicable to such brand have been achieved pursuant to this section and section 3005; or

(B)

the owner or operator of such brand holds allowances to sell to not less than the brand's total annual users;

except that, after January 1, 2015, the user limitations established in this section shall be superseded by those established under section 3005. The owner or operator of any brand in violation of this section shall be fully liable for such violation including liability for fulfilling the obligations specified in section 3008.
(b)

Substitutions

The owner or operator of an affected brand under subsection (a) may include in its section 3006 permit application and proposed compliance plan, a proposal to reassign, in whole or in part, the affected brand's tobacco user reduction requirements to any other brand or brands under the control of such owner or operator. Such proposal shall specify—

(1)

the designation of the substitute brand or brands to which any part of the reduction obligations of subsection (a) shall be required, in addition to, or in lieu of, any original affected brands designated under such subsection;

(2)

the original affected brand's baseline, the actual and allowable 2006 tobacco users, and the authorized annual allowance allocation stated in the list in subsection (a)(1);

(3)

the calculation of the annual average United States tobacco users for calendar years 2004, 2005, and 2006, sold to by the substitute brand or brands, based on the baseline for each brand;

(4)

the user limitations that would be applicable to the original and substitute affected brands under the substitution proposal;

(5)

documentation, to the satisfaction of the Secretary, that the reassigned user limitations will, in total, achieve the same or greater user reduction than would have been achieved by the original affected brand and the substitute brand or brands without such substitution; and

(6)

such other information as the Secretary may require.

(c)

Secretary's action on substitution proposals

(1)

Final action

(A)

In general

The Secretary shall take final action on a substitution proposal under subsection (b) in accordance with section 3006 if the substitution proposal complies with the requirements of this subsection.

(B)

Approval

The Secretary may approve a substitution proposal under subsection (b) in whole or in part and with such modifications or conditions as may be consistent with the orderly functioning of the allowance system under this title and which will ensure the user reductions contemplated by this title.

(C)

Disapproval

If a substitution proposal does not meet the requirements of subsection (b), the Secretary shall disapprove it.

(D)

Limitation

The owner or operator of a brand on the list in subsection (a) shall not substitute another brand or brands without the prior approval of the Secretary.

(2)

Actions upon approval

(A)

In general

Upon the approval of a substitution proposal under this subsection, each substitute brand, and each manufacturer with such brand, shall be deemed to be affected under this title, and the Secretary of the Treasury shall revise any permits to the original and substitute affected manufacturer and brand in accordance with the approved substitution plan and section 3006.

(B)

Revised allocation

The Secretary shall allocate allowances for the original and substitute affected brands in accordance with the approved substitution proposal pursuant to section 3003.

(C)

Limitation

It shall be unlawful for any manufacturer or brand that is allocated allowances pursuant to this section to sell to United States tobacco users in excess of the limitation provided for in the approved substitution plan unless the owner or operator of each brand governed by the permit and approved substitution plan holds allowances to sell to not less than the brand’s total annual users. The owner or operator of any original or substitute affected brand operated in violation of this subsection shall be fully liable for such violation, including liability for fulfilling the obligations specified in section 3008.

(3)

Disapproval

If a substitution proposal is disapproved, the Secretary shall allocate allowances to the original affected brand or brands in accordance with subsection (a).

(4)

Rule of construction

Nothing in this subsection shall be construed as an event of force majeur or a commercial impractibility or in any other way as a basis for excused nonperformance by a manufacturer.

3005.

Phase II tobacco user requirements

(a)

Applicability

Beginning on January 1, 2015, each existing affected brand shall be subject to the limitations or requirements of this section.

(b)

Affected brands and manufacturers

(1)

Affected brands

Each brand that is subject to an annual tobacco user limitation under this section shall be deemed to be an affected brand under this title.

(2)

Affected manufacturers

Each manufacturer that includes one or more affected brands is an affected manufacturer.

(3)

Brands not in operation in 2008

In the case of a brand that was not in operation during calendar year 2008, the United States tobacco users for a calendar year after 2008, as determined by the Secretary, shall be used in lieu of the 2008 rate.

(4)

Publication of list

(A)

Proposed list

Not later than December 31, 2013, the Secretary shall publish a proposed list of the annual Phase II allowance allocations for the years 2016 through 2027.

(B)

Final list

After notice and opportunity for public comment, but not later than November 30, 2014, the Secretary shall publish a final list of the annual Phase II allocations, subject to the provisions of section 3005.

(c)

Liability

The owner or operator of any brand operated in violation of this section shall be liable under this Act for fulfilling the obligations specified in section 3008.

(d)

Unlawful acts

It shall be unlawful for a brand—

(1)

beginning on January 1, 2015, to exceed an annual United States tobacco user limitation equal to the product of the brand's baseline multiplied by 2/3, unless the owner or operator of such brand holds allowances to sell to not less than the brand's total annual users; and

(2)

beginning on January 1, 2027, to exceed an annual United States tobacco user limitation equal to the product of its baseline multiplied by 0.1, unless the owner or operator holds allowances to sell to not less than the brand’s total annual United States tobacco users.

3006.

Permits and compliance plans

(a)

Permit program

The provisions of this title shall be implemented, subject to section 3003, through the modification of, or an addition to, a permit issued to a brand that is subject to this title and issued and enforced in accordance with the provisions of section 5713 of the Internal Revenue Code of 1986. Any such permit issued by the Secretary of the Treasury shall prohibit—

(1)

annual sales to United States tobacco users in excess of the number of allowances the owner or operator, or the designated representative of the owners or operators, of the brand hold for the brand under this title;

(2)

the brand from exceeding applicable United States tobacco user levels;

(3)

the use of any allowance prior to the year for which it was allocated; and

(4)

noncompliance with any other provision of the permit.

No permit shall be issued under this section that is inconsistent with the requirements of this title, and section 5713 of the Internal Revenue Code of 1986, as applicable.
(b)

Compliance plan

(1)

In general

An application for a permit under this section shall contain a compliance plan with respect to compliance by the manufacturer with the requirements of this title. The Secretary may require that the owner or operator of 2 or more affected manufacturers submit an integrated compliance plan providing an overall plan for achieving compliance by the affected manufacturers.

(2)

Coverage of all brands

Where an affected manufacturer consists of more than 1 affected brand, the compliance plan shall cover all such brands.

(3)

Statement that brand will meet requirements

Except as provided under section 3004(c)(1)(B), the submission of a statement by the owner or operator, or the designated representative of the owner or operator, of a brand that is subject to the limitation requirements of sections 3004 and 3005, that the brand will meet the applicable limitation requirements of such sections in a timely manner and that the owners and operators will hold allowances to sell to not less than the total annual United States tobacco users of the brand, shall be deemed to meet the proposed and approved compliance planning requirements of this section and section 5713 of the Internal Revenue Code of 1986.

(4)

Automatic amending of permits and plans

The recording by the Secretary of a transfer of allowances under this title shall be deemed to automatically amend all applicable proposed or approved permit applications, compliance plans, and permits under this section.

(5)

Rule of construction

Nothing in this section shall be construed as affecting allowances under this title.

(c)

Regulations; issuance of permits

(1)

Regulations

Not later than 9 months after the date of the enactment of this title, the Secretary of the Treasury shall promulgate regulations, in consultation with the Secretary of Health and Human Services, in accordance with sections 5712 and 5713 of the Internal Revenue Code of 1986, to modify the permit program for affected manufacturers under this title.

(2)

Issuance of permits

(A)

In general

Following the promulgation of regulations under paragraph (1), the Secretary of the Treasury shall issue modified permits to implement the requirements of sections 3004 and 3005 and the allowances provided for under section 3003 to the owner or operator of each affected manufacturer under sections 3004 and 3005. The permit issued in accordance with this subsection for an affected manufacturer shall provide that the affected brands of the affected manufacturer may not sell to an annual number of United States tobacco users that is in excess of the number of allowances the owner or operator or designated representative hold for the brand.

(B)

First phase permits

(i)

In general

The Secretary of the Treasury shall issue permits to affected manufacturers under section 5713 of the Internal Revenue Code of 1986.

(ii)

Permit application and compliance plan

(I)

In general

Not later than 12 months after the date of the enactment of this title, the designated representative of the owner or operator, or the owner and operator, of each affected manufacturer shall submit a permit application and compliance plan for that manufacturer in accordance with regulations promulgated and issued by the Secretary of the Treasury under clause (i). The permit application and the compliance plan shall be binding on the owner or operator or the designated representative of owners and operators for purposes of this title, and shall be enforceable in lieu of a permit until a permit is issued by the Secretary of the Treasury for the manufacturer.

(II)

Action on compliance plans

The Secretary shall review each proposed compliance plan to determine whether it satisfies the requirements of this title, and shall communicate such review to the Secretary of the Treasury, who shall approve or disapprove such plan within 6 months after the receipt of a complete submission. If a plan is disapproved, it may be resubmitted for approval with such changes as the Secretary of the Treasury shall require consistent with the requirements of this title and within such period as the Secretary prescribes as part of such disapproval.

(C)

Second phase permits

(i)

In general

The Secretary of the Treasury shall issue permits to affected manufacturers under section 5713 of the Internal Revenue Code of 1986.

(ii)

Permit application and compliance plan

Annually beginning in January 1, 2014, the designated representative of the owner or operator, or the owner and operator, of each affected manufacturer shall submit a permit application and compliance plan for that manufacturer in accordance with regulations issued by the Secretary of the Treasury under clause (i). The permit application and the compliance plan shall be binding on the owner or operator or the designated representative of owners and operators for purposes of this title, and shall be enforceable in lieu of a permit until a permit is issued by the Secretary of the Treasury for the manufacturer.

(D)

New brands

The owner or operator of each manufacturer that includes a new brand shall submit a permit application and compliance plan to the Secretary of the Treasury not later than the date on which the brand commences operation. The Secretary of the Treasury shall issue a permit to the owner or operator of the brand, or the designated representative thereof, if the brand satisfies the requirements of sections 5712 and 5713 of the Internal Revenue Code of 1986 and this title.

(d)

Amendment of permit application and compliance plan

At any time after the submission of a permit application and compliance plan under this section, the applicant may submit a revised application and compliance plan, in accordance with the requirements of this section and the Internal Revenue Code of 1986.

(e)

Prohibition

It shall be unlawful—

(1)

for an owner or operator, or designated representative, required to submit a permit application or compliance plan under this title to fail to submit such application or plan in accordance with the regulations promulgated under this section or to otherwise fail to comply with regulations implementing this section; and

(2)

for any person to operate any manufacturer subject to this title except in compliance with the terms and requirements of a permit application and compliance plan (including amendments thereto) or permit issued by the Secretary of the Treasury.

For purposes of this subsection, compliance with a permit issued under section 5713 of the Internal Revenue Code of 1986 which complies with this title for manufacturers subject to this title shall be deemed to be in compliance with this subsection.
(f)

Certificate of representation and multiple owners

(1)

Certificate

No permit shall be issued under this section to an affected brand until the designated representative of the owners or operators has filed a certificate of representation with regard to matters under this title, including the holding and distribution of allowances and the proceeds of transactions involving allowances. Except as otherwise provided for in this subsection, where all legal or equitable title to or interest in an affected brand is held by a single person, the certification shall state that all allowances received by the brand are deemed to be held for that person.

(2)

Multiple owners

If there are multiple holders of a legal or equitable title to, or a leasehold interest in, such a brand, the certificate under paragraph (1) shall state—

(A)

that allowances and the proceeds of transactions involving allowances will be deemed to be held or distributed in proportion to each holder's legal, equitable, leasehold, or contractual reservation or entitlement; or

(B)

if such multiple holders have expressly provided for a different distribution of allowances by contract, that allowances and the proceeds of transactions involving allowances will be deemed to be held or distributed in accordance with the contract.

(3)

Leaseholder agreements

A passive lessor, or a person who has an equitable interest through such lessor, whose rental payments are not based, either directly or indirectly, upon the revenues or income from the affected brand shall not be deemed to be a holder of a legal, equitable, leasehold, or contractual interest for the purpose of holding or distributing allowances as provided in this subsection, during either the term of such leasehold or thereafter, unless expressly provided for in the leasehold agreement.

3007.

Excess users penalty

(a)

Excess users penalty

(1)

In general

The owner or operator of any brand or manufacturer subject to the requirements of section 3003, 3004 or 3005, that sells to United States tobacco users for any calendar year an amount in excess of the brand's user limitation requirement or of the allowances the owner or operator holds for use for the brand for that calendar year shall be liable for the payment of an excess users penalty.

(2)

Determination of penalty

The penalty under paragraph (1) shall be an amount that equals the product of—

(A)

the number of users in excess of the brand's user limitation requirement or of the allowances the operator holds for use for the brand for that year, as applicable; and

(B)

$3,500.

(3)

Payment

A penalty under this subsection shall be due and payable without demand to the Secretary of the Treasury. Any such payment shall be deposited in the United States Treasury pursuant to the Miscellaneous Receipts Act. Any penalty due and payable under this section shall not diminish the liability of the brand's owner or operator for any fine, penalty, or assessment against the brand for the same violation under any other section of this title.

(4)

Regulations

Not later than 12 months after the date of enactment of this title, the Secretary shall promulgate regulations with respect to the payment of penalties under this subsection.

(b)

Excess users offset

(1)

In general

The owner or operator of any affected manufacturer that sells to United States tobacco users during any calendar year in excess of the brand's limitation requirement or of the allowances held for the brand for the calendar year, shall be liable to offset the excess users by an equal amount in the following calendar year, or such longer period as the Secretary of the Treasury may prescribe.

(2)

Plan

Not later than 60 days after the end of the year in which the excess users occurred, the owner or operator of the manufacturer shall submit to the Secretary a proposed plan to achieve the offsets required under paragraph (1). Upon approval of the proposed plan by the Secretary, as submitted, modified, or conditioned, the plan shall be deemed to be a condition of the operating permit under section 3006 for the brand without further review or revision of the permit.

(3)

Deduction of allowances

The Secretary shall deduct allowances equal to the excess from those allocated for the manufacturer for the calendar year, or succeeding years during which offsets are required under this section, following the year in which the excess users occurred.

(c)

Penalty adjustment

The Secretary of the Treasury shall, by regulation, adjust the penalty amount specified in subsection (a)(2)(B) to account for the excess health costs per tobacco user and inflation, based on the change in Medical Inflation (as reported annually by the Council of Economic Advisors), on the date of enactment and annually thereafter.

(d)

Prohibition

It shall be unlawful for the owner or operator of any manufacturer liable for a penalty and offset under this section to fail—

(1)

to pay the penalty under subsection (a);

(2)

to provide, and thereafter comply with, a compliance plan as required under subsection (b); or

(3)

to offset excess users as required under subsection (b).

3008.

Inventories; Reports; Records

(a)

Inventories

Every manufacturer or importer of tobacco products shall make a true and accurate inventory at the time of commencing business, at the time of concluding business, and at such other times, in such manner and form, and to include such items, as the Secretary of the Treasury shall by regulation prescribe. Such inventories shall be subject to verification by any internal revenue officer. The Secretary, in consultation with the Secretary of the Treasury, shall develop and implement processes to verify allowances issued under section 3003 against information in records of compliance.

(b)

Reports

Every manufacturer or importer of tobacco products shall make a report for each month and for any portion of a month during which such manufacturer or importer engages in such business. Such report shall be made regardless of whether any operations or transactions occurred during the month or portion of a month covered therein. The report for a month or portion of a month in which business is commenced or is concluded shall be conspicuously marked Commencing Report or Concluding Report, respectively. The original of the report shall be submitted to the appropriate Alcohol and Tobacco Tax and Trade Bureau officer not later than the 20th day of the month succeeding the month covered therein. Each report shall show, for the period covered, the total quantity of tobacco products—

(1)

manufactured;

(2)

received in bond;

(3)

received by return to bond;

(4)

disclosed by inventory as an overage;

(5)

removed subject to tax;

(6)

removed in bond;

(7)

otherwise disposed of without determination of tax;

(8)

disclosed by inventory as a shortage; and

(9)

on hand, in bond, at the beginning of and end of the month.

(c)

Records

Every affected manufacturer shall keep records in accordance with section 40.183 of title 27, Code of Federal Regulations (or successor regulations). Affected manufacturers shall retain any issued permit, compliance plan, if applicable, and any amendments thereto, and documentation relating to allowances under section 3003 received, held and temporarily or permanently transferred, including certification of such transfer together with the copy of the application and supporting documents.

.

IV

Revenue provisions

401.

Increase in excise tax rate on tobacco products based on relative health risk

(a)

Cigarettes

Section 5701(b) of the Internal Revenue Code of 1986 is amended—

(1)

by striking $19.50 per thousand ($17 per thousand on cigarettes removed during 2000 or 2001) in paragraph (1) and inserting $19.50 plus the applicable risk amount per thousand, and

(2)

by striking $40.95 per thousand ($35.70 per thousand on cigarettes removed during 2000 or 2001) in paragraph (2) and inserting $40.95 plus the applicable risk amount per thousand.

(b)

Cigars

Section 5701(a) of the Internal Revenue Code of 1986 is amended—

(1)

by striking $1.828 cents per thousand ($1.594 cents per thousand on cigars removed during 2000 or 2001) in paragraph (1) and inserting $1.828 cents plus the applicable risk amount per thousand,

(2)

by striking 20.719 percent (18.063 percent on cigars removed during 2000 or 2001) in paragraph (2) and inserting 20.719 percent plus the applicable risk percentage, and

(3)

by striking $48.75 per thousand ($42.50 per thousand on cigars removed during 2000 or 2001) in paragraph (2) and inserting $48.75 plus the applicable risk amount per thousand.

(c)

Smokeless Tobacco

Section 5701(e) of the Internal Revenue Code of 1986 is amended—

(1)

by striking 58.5 cents (51 cents on snuff removed during 2000 or 2001) in paragraph (1) and inserting 58.5 cents plus the applicable risk amount, and

(2)

by striking 19.5 cents (17 cents on chewing tobacco removed during 2000 or 2001) in paragraph (2) and inserting 19.5 cents plus the applicable risk amount.

(d)

Applicable risk amount

Section 5701 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(p)

Applicable risk amount

With respect to each tobacco product or group of products classified by the Tobacco Risk Classification Panel under the Food and Drug Administration, the following applicable risk amounts or percentages shall apply:

(1)

Small cigarettes: Class I—$10; Class II—$20; and Class III—$30.

(2)

Large cigarettes: Class I—$20; Class II—$40; and Class III—$60.

(3)

Small cigars: Class I—$0.914; Class II—$1.828; and Class III—$2.742.

(4)

Large cigars: Class I—5 percent; Class II—10 percent; and Class III—15 percent, but not more than $73.12.

(5)

Smokeless (snuff): Class I—29.25 cents; Class II—58.5 cents; and Class III—87.75 cents.

(6)

Smokeless (chewing): Class I—10 cents; Class II—20 cents; and Class III—30 cents.

.

(e)

Floor Stocks Taxes

(1)

Imposition of tax

On tobacco products and cigarette papers and tubes manufactured in or imported into the United States which are removed before January 1, 2008, and held on such date for sale by any person, there is hereby imposed a tax in an amount equal to the excess of—

(A)

the tax which would be imposed under section 5701 of the Internal Revenue Code of 1986 on the article if the article had been removed on such date, over

(B)

the prior tax (if any) imposed under section 5701 of such Code on such article.

(2)

Credit against tax

Each person shall be allowed as a credit against the taxes imposed by paragraph (1) an amount equal to $500. Such credit shall not exceed the amount of taxes imposed by paragraph (1) on January 1, 2008, for which such person is liable.

(3)

Liability for tax and method of payment

(A)

Liability for tax

A person holding cigarettes on January 1, 2008, to which any tax imposed by paragraph (1) applies shall be liable for such tax.

(B)

Method of payment

The tax imposed by paragraph (1) shall be paid in such manner as the Secretary shall prescribe by regulations.

(C)

Time for payment

The tax imposed by paragraph (1) shall be paid on or before April 1, 2008.

(4)

Articles in foreign trade zones

Notwithstanding the Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any other provision of law, any article which is located in a foreign trade zone on January 1, 2004, shall be subject to the tax imposed by paragraph (1) if—

(A)

internal revenue taxes have been determined, or customs duties liquidated, with respect to such article before such date pursuant to a request made under the 1st proviso of section 3(a) of such Act, or

(B)

such article is held on such date under the supervision of a customs officer pursuant to the 2d proviso of such section 3(a).

(5)

Definitions

For purposes of this subsection—

(A)

In general

Terms used in this subsection which are also used in section 5702 of the Internal Revenue Code of 1986 shall have the respective meanings such terms have in such section.

(B)

Secretary

The term Secretary means the Secretary of the Treasury or the Secretary’s delegate.

(6)

Controlled groups

Rules similar to the rules of section 5061(e)(3) of such Code shall apply for purposes of this subsection.

(7)

Other laws applicable

All provisions of law, including penalties, applicable with respect to the taxes imposed by section 5701 of such Code shall, insofar as applicable and not inconsistent with the provisions of this subsection, apply to the floor stocks taxes imposed by paragraph (1), to the same extent as if such taxes were imposed by such section 5701. The Secretary may treat any person who bore the ultimate burden of the tax imposed by paragraph (1) as the person to whom a credit or refund under such provisions may be allowed or made.

(f)

Effective Date

The amendments made by this section shall apply to articles removed (as defined in section 5702(k) of the Internal Revenue Code of 1986) after December 31, 2007.

(g)

Use of Amounts

With respect to any increase in revenues to the Treasury resulting from the provisions of and amendments made by this section, without further appropriation—

(1)

50 percent of such increase shall be transferred to the Federal Hospital Insurance Trust Fund established under section 1817 of the Social Security Act (42 U.S.C. 1395i),

(2)

25 percent of such increase shall be transferred to the States through the medicaid program under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.), and

(3)

25 percent of such increase shall be provided to the States through matching grants for the development and administration of programs to restrict youth access to tobacco products as provided for in regulations promulgated by the Secretary of Health and Human Services, including grants under section 3009 of the Public Health Service Act, and for counter-advertising under section 506C of the Public Health Service Act.

V

Cessation and prevention

501.

Food and Drug Administration Tobacco Risk Classification Panel

Chapter VII of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 371 et seq.) is amended by adding at the end the following:

I

Provisions relating to tobacco

765.

Tobacco Risk Classification Panel

(a)

Tobacco product classes

(1)

In general

There are established the following classes of tobacco products:

(A)

Class I—general risk

A tobacco product or group of products with typical health risks shall be referred to as a Class I product.

(B)

Class II—special risk

A tobacco product or group of products that cannot be classified as a Class I tobacco product because it is—

(i)

of greater risk than a Class I product; or

(ii)

there is insufficient evidence to classify such product or group of products as Class I products;

shall be referred to as a Class II product.
(C)

Class III—enhanced risk

A tobacco product or group of products that—

(i)

is of greater risk than a Class II product;

(ii)

there is insufficient evidence to classify such product or group of products as Class II products; or

(iii)

presents a potentially unreasonable risk of illness or injury;

shall be referred to as a Class III product.
(2)

Determinations

For purposes of this section, the classification of a tobacco product or group of products is to be determined considering—

(A)

the impact on youth tobacco use and health;

(B)

data supporting actual levels of risk, exposure or harm due to the product; and

(C)

any implied reduction in levels of risk, exposure or harm due to the product or its labeling.

(b)

Establishment of panel

(1)

In general

For the purpose of securing recommendations with respect to the classification of tobacco products or groups of products, the Secretary shall establish a panel of experts to be known as the Tobacco Risk Classification Panel (referred to in this section as the panel).

(2)

Members

The Secretary shall appoint to the panel individuals who are qualified by training and experience to evaluate the risk and relative risk of tobacco products and who, to the extent feasible, possess skill in the study of the health effects of tobacco products, or experience in tobacco cessation, control and prevention. The Secretary shall designate one of the members of such panel to serve as the chairperson.

(3)

Administrative provisions

(A)

Compensation and expenses

Members of the panel (other than officers or employees of the United States), while attending meetings or conferences of the panel or otherwise engaged in its business, shall be entitled to receive compensation at rates to be fixed by the Secretary, but not at rates exceeding the daily equivalent of the rate in effect for grade GS–18 of the General Schedule, for each day so engaged, including travel time, and while so serving away from their homes or regular places of business each member may be allowed travel expenses (including per diem in lieu of subsistence) as authorized by section 5703 of title 5, United States Code, for persons in the Government service employed intermittently.

(B)

Staff and assistance

The Secretary shall furnish the panel with adequate clerical and other necessary assistance.

(C)

Meetings

The panel shall meet at such times as may be appropriate to enable the Secretary to meet applicable statutory deadlines.

(D)

Limitations

The panel shall not be subject to the annual chartering and annual report requirements of the Federal Advisory Committee Act. Section 14 of such Act shall not apply to the duration of the panel.

(4)

Duties

The panel shall make recommendations to the Secretary concerning the classification of tobacco products.

(c)

Classification

(1)

In general

Not later than 15 months after the date of enactment of this section, and as necessary thereafter for new products, the Secretary, based on the recommendations of the panel, shall classify all tobacco products into the classes established under subsection (a). Such classification may be made for a group of similar or related products.

(2)

Actions of panel

(A)

In general

Upon the completion of the panel’s review of a tobacco product or group of products referred to it under paragraph (1), the panel shall submit to the Secretary its recommendation for the classification of the tobacco product or group of products. Any such recommendation shall contain—

(i)

a summary of the reasons for the recommendation;

(ii)

a summary of the data upon which the recommendation is based; and

(iii)

an identification of the risks to health presented by the tobacco product or group of products with respect to which the recommendation is made.

(B)

Review and final determination by Secretary

After receiving the conclusions and recommendations of the panel on a matter that the panel has reviewed under this section, the Secretary shall review the conclusions and recommendations, shall make a final decision on the matter, and shall notify the affected persons of the decision in writing and, if the decision differs from the conclusions and recommendations of the panel, shall include the reasons for the difference.

(C)

Submission of recommendations

Not later than 1 year after the date of enactment of this section, the panel shall submit to the Secretary recommendations concerning all tobacco products or groups of products introduced or delivered for introduction into interstate commerce for commercial distribution before the date of the enactment of this section.

(3)

Publication

Upon receipt of a recommendation from a panel under paragraph (2)(C), the Secretary shall publish in the Federal Register the panel’s recommendation and a proposed regulation classifying such tobacco product or group of products under subsection (a).

(4)

Existing products

In the case of a tobacco product or group of products which has been introduced or delivered for introduction into interstate commerce for commercial distribution before the date of enactment of this section, the panel shall recommend to the Secretary that the tobacco product or group of products be classified as a Class III product unless the panel determines that classification of the tobacco product or group of products in such class is not necessary. If a panel does not recommend that such a tobacco product or group of products be classified as a Class III product, it shall in its recommendation to the Secretary for the classification of the tobacco product or group of products set forth the reasons for not recommending classification of the tobacco product in such class.

(5)

New products

(A)

In general

Any tobacco product or group of products which was not introduced or delivered for introduction into interstate commerce for commercial distribution before the date of the enactment of this section shall be classified as a Class III product unless the Secretary in response to a recommendation of the panel has classified such tobacco product or group of products as a Class I or Class II product.

(B)

Limitation

A tobacco product or group of products classified as a Class III product under this subsection shall be classified in that class until the effective date of an order of the Secretary classifying the tobacco product or group of products as a Class I or Class II product.

(6)

Access to data

Any person whose tobacco product is specifically the subject of review by the panel shall have—

(A)

the same access to data and information submitted to the panel (except for data and information that are not available for public disclosure under section 552 of title 5, United States Code) as the Secretary; and

(B)

the opportunity to submit, for review by the panel, additional information, which shall be submitted to the Secretary for prompt transmittal to the panel.

(7)

Meetings

Any meetings of the panel shall provide adequate time for initial presentations and for response to any differing views by persons whose tobacco products are specifically the subject of panel review, and shall encourage free and open participation by all interested persons.

(d)

Classification changes

(1)

In general

Based on new information concerning a tobacco product or group of products, the Secretary may by regulation change the classification of such tobacco product or group of products. In promulgating a regulation regarding a change in the classification of a tobacco product or group of products, the Secretary may secure from the panel a recommendation concerning the proposed change in the classification of the tobacco product or group of products and shall publish in the Federal Register any recommendation submitted to the Secretary by the panel with respect to such change.

(2)

Class changes

By regulation promulgated under paragraph (1), the Secretary may change the classification of a tobacco product from Class III to Class II or Class I only if the appropriate relative risk determination has been made.

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502.

Authority to prohibit nicotine

Subchapter I of chapter VII of the Federal Food, Drug, and Cosmetic Act (as amended by section 501) is further amended by adding at the end the following:

766.

Authority to prohibit nicotine

The Secretary may prohibit the introduction or delivery for introduction into interstate commerce of any product that contains nicotine if such product has no health benefit.

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503.

Counter-advertising

Part A of title V of the Public Health Service Act (42 U.S.C. 290aa et seq.) is amended by adding at the end the following:

506C.

Tobacco use counter-advertising

The Secretary, acting through the Administrator of the Substance Abuse and Mental Health Services Administration, shall carry out a campaign of counter-advertising with respect to tobacco use. The campaign shall consist of the placement of pro-health advertisements regarding tobacco use on television, on radio, in print, on billboards, on movie trailers, on the Internet, and in other media.

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504.

Medicare coverage of counseling for cessation of tobacco use

(a)

Coverage

Section 1861(s)(2) of the Social Security Act (42 U.S.C. 1395x(s)(2)) is amended—

(1)

in subparagraph (Z), by striking and at the end;

(2)

in subparagraph (AA), by inserting and at the end; and

(3)

by adding at the end the following new subparagraph:

(BB)

counseling for cessation of tobacco use (as defined in subsection (ccc));

.

(b)

Services Described

Section 1861 of the Social Security Act (42 U.S.C. 1395x) is amended by adding at the end the following new subsection:

(ccc)

Counseling for Cessation of Tobacco Use

(1)
(A)

Subject to subparagraph (B), the term counseling for cessation of tobacco use means diagnostic, therapy, and counseling services for cessation of tobacco use for individuals who use tobacco products or who are being treated for tobacco use which are furnished—

(i)

by or under the supervision of a physician;

(ii)

by a practitioner described in clause (i), (iii), (iv), (v) or (vi) of section 1842(b)(18)(C); or

(iii)

by a licensed tobacco cessation counselor (as defined in paragraph (2)).

(B)

Such term is limited to—

(i)

services recommended in Treating Tobacco Use and Dependence: A Clinical Practice Guideline, published by the Public Health Service in June 2000, or any subsequent modification of such Guideline; and

(ii)

such other services that the Secretary recognizes to be effective.

(2)

In this subsection, the term licensed tobacco cessation counselor means a tobacco cessation counselor who—

(A)

is licensed as such by the State (or in a State which does not license tobacco cessation counselors as such, is legally authorized to perform the services of a tobacco cessation counselor in the jurisdiction in which the counselor performs such services); and

(B)

meets uniform minimum standards relating to basic knowledge, qualification training, continuing education, and documentation that are established by the Secretary for purposes of this subsection.

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(c)

Payment and Elimination of Cost-Sharing for Counseling for Cessation of Tobacco Use

(1)

Payment and elimination of coinsurance

Section 1833(a)(1) of the Social Security Act (42 U.S.C. 1395l(a)(1)) is amended—

(A)

by striking and before (V); and

(B)

by inserting before the semicolon at the end the following: , and (W) with respect to counseling for cessation of tobacco use (as defined in section 1861(ccc)), the amount paid shall be 100 percent of the lesser of the actual charge for the service or the amount determined by a fee schedule established by the Secretary for purposes of this subparagraph.

(2)

Elimination of coinsurance in outpatient hospital settings

(A)

Exclusion from OPD fee schedule

Section 1833(t)(1)(B)(iv) of the Social Security Act (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended by striking and diagnostic mammography and inserting , diagnostic mammography, or counseling for cessation of tobacco use (as defined in section 1861(ccc)).

(B)

Conforming amendments

Section 1833(a)(2) of the Social Security Act (42 U.S.C. 1395l(a)(2)) is amended—

(i)

in subparagraph (F), by striking and after the semicolon at the end;

(ii)

in subparagraph (G)(ii), by striking the comma at the end and inserting ; and; and

(iii)

by inserting after subparagraph (G)(ii) the following new subparagraph:

(H)

with respect to counseling for cessation of tobacco use (as defined in section 1861(ccc)) furnished by an outpatient department of a hospital, the amount determined under paragraph (1)(W),

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(3)

Elimination of deductible

The first sentence of section 1833(b) of the Social Security Act (42 U.S.C. 1395l(b)) is amended—

(A)

by striking and before (8); and

(B)

by inserting before the period the following: , and (9) such deductible shall not apply with respect to counseling for cessation of tobacco use (as defined in section 1861(ccc)).

(d)

Application of Limits on Billing

Section 1842(b)(18)(C) of the Social Security Act (42 U.S.C. 1395u(b)(18)(C)) is amended by adding at the end the following new clause:

(vii)

A licensed tobacco cessation counselor (as defined in section 1861(ccc)(2)).

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(e)

Inclusion as Part of Initial Preventive Physical Examination

Section 1861(ww)(2) of the Social Security Act (42 U.S.C. 1395x(ww)(2)) is amended by adding at the end the following new subparagraph:

(M)

Counseling for cessation of tobacco use (as defined in subsection (ccc)).

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(f)

Effective Date

The amendments made by this section shall apply to services furnished on or after the date that is 1 year after the date of enactment of this Act.

505.

Medicare coverage of tobacco cessation pharmacotherapy

Section 1860D–2(e)(1) of the Social Security Act (42 U.S.C. 1395w–102(e)(1)) is amended—

(1)

in subparagraph (A), by striking or after the semicolon at the end;

(2)

in subparagraph (B), by striking the comma at the end and inserting ; or; and

(3)

by inserting after subparagraph (B) the following new subparagraph:

(C)

any agent approved by the Food and Drug Administration for purposes of promoting, and when used to promote, tobacco cessation that may be dispensed without a prescription (commonly referred to as an over-the-counter drug), but only if such an agent is prescribed by a physician (or other person authorized to prescribe under State law),

.

506.

Tobacco cessation for Federal employee health benefits plans

(a)

Contract requirement

Section 8902 of title 5, United States Code, is amended by adding at the end the following:

(p)

Each contract under this chapter shall require the carrier to provide for the establishment and maintenance of a tobacco cessation program.

.

(b)

Effective date and application

The amendment made by this section shall take effect on the date of enactment of this Act and apply with respect to contracts for health benefits plans under chapter 89 of title 5, United States Code, which take effect on and after January of the first calendar year following 1 year after the date of enactment of this Act.

507.

Matching grants for States that use a significant portion of master settlement agreement funds for tobacco control and cessation

Title XXX of the Public Health Service Act, as added by section 301, is amended by adding at the end the following:

3009.

Matching grants for States that use a significant portion of master settlement agreement funds for tobacco control and cessation

(a)

In general

The Secretary may award matching grants to eligible States to enable such States to carry out additional tobacco control and cessation activities.

(b)

Eligibility

To be eligible to receive a grant under subsection (a), a State shall—

(1)

demonstrate to the satisfaction of the Secretary that, with respect to the calendar year preceding the year in which the State is applying for such a grant, the State expended in excess of 25 percent of the funds paid to the State for such year as part of the comprehensive settlement of November 1998 referred to in section 1903(d)(3)(B)(i) of the Social Security Act on tobacco control and cessation activities; and

(2)

submit to the Secretary an application at such time, in such manner, and containing such information as the Secretary may require.

(c)

Amount of grant

With respect to a grant under this section, an eligible State may receive not to exceed an amount equal to 50 percent of the amount expended by the State in excess of the 25 percent of funds described in subsection (b)(1) for the year involved.

(d)

Funding

The Secretary shall use amounts made available in each fiscal year under section 401(g)(3) of the Help End Addiction to Lethal Tobacco Habits Act to carry out this section.

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