Congress is moving expeditiously to pass the “One Big Beautiful Bill” that enacts President Trump’s economic agenda, making the historic 2017 Tax Cuts & Jobs Act permanent, providing additional tax relief for workers, and rewarding investment in America.
I applaud the House of Representatives for acting swiftly on this critical legislation that will strengthen families, workers and small businesses.
However, with the bill advancing under the president’s July 4th timetable, a little-noticed provision is causing serious concern among America’s smaller farmers and those who export Made-In-America products around the world against competitors like China. First proposed under President Joe Biden’s Build Back Better initiative, it targets American tobacco farmers, especially smaller farmers, with language that undermines a crucial, long-standing U.S. export incentive called duty drawback.
Duty drawback has been around since 1789 when our first Treasury secretary, Alexander Hamilton, introduced his “American System” — as Henry Clay later dubbed Hamilton’s economic theories — to build the nation around an export-oriented economy.
Hamilton proposed, and Congress enacted, a provision allowing exporters to “draw back” — meaning obtain refunds on — tariffs or excise taxes paid on imported products that are later re-exported, frequently as part of finished products. Legislators later enabled manufacturers to qualify for the drawback by substituting similar exported products.
This long-standing export incentive was recently expanded by a Republican Congress and signed into law in 2016. Despite Congress’s clear intent and a proven policy dating back to America’s earliest days, a Treasury bureaucrat invented the novel notion that this boost for U.S. export businesses and their suppliers was actually a “double drawback” because the offsetting exports were not taxed. Treasury then proposed a rule, which was withdrawn, but revived in 2018, to eliminate the drawback for tobacco and other products.
This concept is pure nonsense. The whole idea of drawbacks is to refund excise taxes already paid on imported goods. Insisting that duties be paid on exported goods would defeat the entire purpose by, in essence, requiring double taxation to qualify for a single refund. In fact, Article I, Section 9 of the Constitution prohibits any “Tax or Duty” to “be laid on Articles exported from any State.”
Which is why the Court of International Trade rejected the 2018 rule, making short work of the “double drawback” double talk and the idea that refunding excise taxes on the import, as opposed to on export, was somehow an “accident” or “unintended consequence.”
World Trade Organization rules specifically allow duty drawback, and nearly all of America’s competitors take advantage, with generous benefits going beyond duties and excise taxes. For example, European Union companies can import products for processing free of duties or Value Added Tax, substitute EU-originating products, and even get transferrable credits against later imports for exported products.
Indian exporters can offset actual payments of Goods and Services Taxes or choose a flat rate, and Brazil refunds all federal and state taxes on imports or domestically procured components when a finished or substituted product is exported.
Unilaterally disarming by taking this export promotion tool from American tobacco farmers sets them up for failure as they compete to gain access in foreign markets where they often pay import duties and VAT. These farmers already are dealing with plummeting consumption of their product and declining prices, as well as intense global competition heightened by the generous promotion programs from which foreign producers benefit, including drawback benefits in these countries.
Ray Starling, who served as chief of staff to Agriculture Secretary Sonny Perdue, adeptly identifies: “The duty drawback is the only remaining export promotion program that allows American tobacco farmers to compete in the global marketplace.”
The U.S. Tobacco Cooperative, which represents 550 tobacco-growing farmers, points out the importance of reviving production in Virginia, Florida, North and South Carolina, Pennsylvania, Georgia, Kentucky and Tennessee, so they can restore their share of sales to manufacturers and compete to win against foreign competitors.
Trump continues to promote an America First agenda that includes expanding our domestic industrial base and manufacturing capacity. It only makes sense that Congress continue to help these farmers hold their own in export markets by ensuring the drawback provision is restored.
The good news is the Senate has time to restore duty drawback before the July 4th deadline and improve the One Big Beautiful Bill to benefit families, workers, small businesses and farmers.
