WASHINGTON - Democrat senators, looking for ways to fund small business job creation initiatives, are proposing to slam shut two perceived tobacco tax loopholes in the State Children??s Health Insurance Program (SCHIP), enacted July 1, 2009, Congress Daily reports.

However, late last year, some reported that tobacco companies were getting around the new taxes by changing the weight on "little cigars" and labeling roll-your-own tobacco as pipe tobacco. For example, SCHIP taxed little cigars like Cheyenne and Swisher Sweets the same as cigarettes: $1.01 a pack. But little cigars had been taxed at 4 cents per pack, which meant those products experienced a more than 2,400 percent tax hike with SCHIP, said Norman Sharp, president of the Cigar Association of America.

To counter that blow, some companies started making little cigars bigger to qualify as regular-sized cigars and cigarillos, which had a better tax rate, said Sharp. SCHIP taxes cigars and cigarillos as much as 40 cents per cigar, up sharply from 5 cents, but still better than $1.01 per pack.

"We don??t consider this to be a tax loophole. These products are legally large cigars as the federal government defines them," said Sharp. But Democrats in the Senate Finance Committee are considering whether to clarify that little cigars should be treated the same as cigarettes.

Also under consideration in the committee is whether to penalize roll-your-own tobacco for supposedly changing its labeling to pipe tobacco to avoid a tax rate of $24.78 a pound, up from $1.10 per pound. Pipe tobacco is taxed at $2.83 per pound.

Senate Democrats, such as Sen. Frank Lautenberg (D-NJ), have seen this as roll-your-own brands going around the law. On the House side, Reps. Steve Cohen (D-TN) and Lloyd Doggett (D-TX) have sponsored the Tobacco Tax Parity Act to raise the pipe tobacco tax to the roll-your-own cigarette rate of $24.78.