In a major setback for public health groups, congressional tax negotiators on Tuesday blocked a plan to allow the Food and Drug Administration to regulate tobacco, but a $10 billion package for tobacco farmers was set to be approved.

Senators supported inclusion of the FDA measure in a massive corporate tax bill but House Republicans blocked them.

Negotiators were not able to wrap up work on Tuesday and some anti-tobacco lawmakers said they would attempt to strike or modify tobacco provisions again on Wednesday. But statements by several negotiators suggested the odds were against them.

The tobacco industry has been divided on FDA legislation, with Altria Group Inc., the parent company of Marlboro-maker Philip Morris, supporting it and other key tobacco companies including Reynolds American Inc.‘s R.J. Reynolds Tobacco unit opposing it.

The House-Senate compromise package must still be approved by the full House and Senate and a few anti-smoking senators have vowed to try to stop the tax bill in the Senate unless it has the FDA language in it.

If the bill “contains a tobacco buyout for farmers but does not include the FDA provisions, it will seriously jeopardize passage,” Massachusetts Democrat Sen. Edward Kennedy said. “We cannot in good conscience allow the federal agency most responsible for protecting the public health to remain powerless to deal with the enormous health risks of cigarettes.”

TRADE DISPUTE PROVISIONS

However, the lengthy bill contains many other provisions, including measures to end a trade dispute with the European Union, so even some backers of the FDA provisions said they will vote for the overall bill, even though they were disappointed about the anti-smoking policy.

“I wasn’t going to let unrelated matters get in the way,” said Iowa Republican Charles Grassley, chairman of the Senate Finance Committee. Although he supported the FDA provisions, he said the main purpose of the tax bill was to create jobs.

Grassley also cited a North Carolina newspaper report last week that said Democratic presidential nominee John Kerry had expressed support for a tobacco buyout with or without the FDA, a position which Grassley said undercut the bargaining power of the FDA backers.

Public health groups had hoped to create a “marriage of convenience” by twinning the FDA provisions and the buyout that will end a Depression-era price support system, and that approach had overwhelming support in the Senate. But some House Republicans, including Majority Leader Tom DeLay of Texas wanted only the buyout.

The House and Senate had different approaches to the buyout as well, but the version included in the bill Tuesday would have the industry finance the $10 billion package. Critics say it is really only $7 billion of new money for farmers, as the companies were already obligated to make some payments under the 1998 legal settlement with states.

Anti-smoking advocates fear they will be even worse off as they seek opportunities to push for FDA regulation, because they no longer have the possibility of linking it to a buyout.

California Democrat Rep. Henry Waxman said by freeing farmers from the old quota system, the buyout would let them cultivate even more tobacco, making it cheaper and more accessible to young people.

Texas Republican Joe Barton, chairman of the House Energy and Commerce Committee, argued for the farm buyout but against the FDA proposal in part because the U.S. “Founding Fathers” grew tobacco in the 18th century. He also said the FDA has “enough problems” without taking on tobacco regulation.