You and I know all too well that American families are paying more for just about everything these days. What we might not know is that buried deep in our federal tax code are scads of examples of how complex tax policy creates unfair advantages—and how fixing them could save taxpayers billions of dollars.

One such example getting a lot of attention in the U.S. Congress right now is referred to as “double drawback,” which relates to refunds (or drawbacks) on federal excise taxes on imported and exported tobacco products. It’s exactly the kind of convoluted tax loophole that puts government in the business of picking winners and losers instead of creating a level playing field for everyone.

Here’s how this bureaucratic maze of trade and tax law works: When multinational tobacco companies manufacture cigarettes both overseas and in the U.S., they can leverage  bonded warehouses in the U.S. (where no federal excise tax is paid) to claim a $1.01 per pack tax refund—even though they never actually paid that tax in the first place. All they must do is import products for American consumers from outside the U.S., and then export the products they make in the U.S. Meanwhile, American companies that manufacture domestically pay the full freight on every pack they produce.

The result? The federal excise tax takes a round-trip through the U.S. Treasury and into the hands of multinational companies.  This “subsidy” from American taxpayers effectively allows these companies to sell cigarettes without federal taxes in the U.S. It’s government-sanctioned market distortion at its worst, and in the already-murky world of sin taxes.

To be sure, this isn’t just about tobacco policy— even if that’s what’s on debate now – it’s about the fundamental principle that tax systems should be fair, transparent, and neutral. When Congress creates complex carve-outs, exemptions, and special preferences, it inevitably puts the government in the driver’s seat of determining which businesses succeed and which ones struggle. That’s not the government’s job.

The double drawback mess didn’t happen overnight. It’s the result of decades of incremental changes, amendments, and court rulings that moved us further and further away from simple, straightforward tax policy. What started as a reasonable trade provision in 1789 (yes, really, 1789!) became a complex web of “substitution drawback” rules in 1984, expanded to include all federal taxes in 2004, and was expanded further in 2015. Each change likely seemed reasonable in isolation, but together they also created a loophole that costs taxpayers $12.1 billion according to the Joint Committee on Taxation.

This is exactly why the Pelican Institute has long championed tax policies that are low, flat, fair, and broadly applied. When the tax code is simple and apply equally to everyone, you don’t get these kinds of unintended consequences that benefit foreign companies at the expense of American workers and farmers.

The good news? President Trump’s “One, Big, Beautiful Bill” emerged from the House with a provision to close this loophole for tobacco products (while leaving the regular drawback system in place). It’s a perfect example of the kind of tax reform that makes sense: removing special preferences, leveling the playing field, and treating all companies fairly under the law. Unfortunately, that provision has not made it in the newly-released Senate draft.

At the Pelican Institute, we believe the best tax policy is the simplest tax policy. When everyone plays by the same rules, markets work, competition thrives, and everyone benefits from lower costs and better choices. But when government picks winners and losers through complex tax preferences, we all pay the price—whether we realize it or not.

Even though this particular example is about federal tax policy, it points to a broader lesson for Louisiana lawmakers as the tax reform process continues.  Every time we create a special exemption, credit, or carve-out in our tax code, we’re putting government in the position of deciding which businesses deserve favorable treatment. That’s not just bad policy—it’s an invitation for exactly the kind of complexity and unfairness we see in this situation.

Closing the double drawback loophole is a good start, but it should remind us that real tax reform means keeping things simple, broad-based, and neutral. That’s how we build an economy that works for everyone, not just those with the best lobbyists in Baton Rouge or Washington.