A Ballot Committee of Citizens for Limited Taxation


Boston Globe
Thursday, December 10, 1998

Give the tobacco windfall back to the taxpayers
By Jeff Jacoby

Tobacco companies won't be paying the $206 billion agreed to in the settlement with the states' attorneys general. Corporations never pay taxes, they just collect them. The money is going to come from smokers, which is another way of saying it is going to come from the poor.

"Smokers have low incomes," writes Robert J. Samuelson, Newsweek's stellar economics columnist. "Only 20 percent of cigarette taxes are paid by those with incomes over $50,000; 34 percent are paid by those with incomes under $20,000 and 19 percent by those with incomes between $20,000 and $30,000."

The tobacco settlement, in Samuelson's apt phrase, is a "reverse Robin Hood arrangement: It sanctifies soak-the-poor taxes and robs the poor to pay the rich." Already cigarette makers have announced a price hike of nearly 50 cents per pack; in some states it will be more. By early 1999, California smokers will be paying an extra dollar for every pack of cigarettes. Antismoking crusaders, who are often wealthy and politically well-connected, typically demonize tobacco companies. But it isn't the tobacco industry that will feel the lash of this settlement. It is ordinary smokers, most of whom are working class stiffs with no connections and not much money.

The $206 billion is supposed to "settle" the states' claim for reimbursement for providing medical care to smokers who get sick. This was always a bogus claim, for several reasons.

First, most smokers have medical insurance, and thus do not burden the public treasury at all.

Second, smokers already repay - through heavy cigarette taxes -- the costs they impose on society. Actually, "repay" is the wrong word; smokers prepay for years before any tobacco-related costs materialize. In 1998, federal and state tobacco taxes will total $15 billion.

Third, smokers are less likely than other groups to draw old-age benefits such as Medicare and Social Security. Studies have repeatedly shown that the slightly shorter lifespan of smokers results in a net savings to the public. In 1994, the National Bureau of Economic Research estimated that savings at a minimum of 23 cents per pack.

And fourth, because no rule of law supports the notion that if a product harms a consumer, the manufacturer owes money to the state. In creating Medicare and Medicaid, the government chose to subsidize health care for eligible individuals regardless of how their medical needs came about. The government could have refused to pay for the care of smokers. But having chosen not to exclude tobacco-related diseases, it has no right then to demand compensation from tobacco companies. This settlement sets a dangerous precedent. If cigarette makers are liable to the government for smokers' illnesses, why shouldn't ski operators be liable to the government for broken legs? Or distillers for cirrhosis of the liver?

By settling the lawsuits, the tobacco companies in essence waived each of these points. In deciding how to spend the money that will come pouring in, the states should do the same, that is, they should take the arguments made by the antitobacco activists at face value and follow them to their logical conclusion.

Assume, therefore, that smoking does impose a net cost on the public. Assume that the taxpayers have been underwriting that cost all these years through Medicare and Medicaid. Assume that the attorneys general were justified in suing the tobacco companies on the taxpayers' behalf to recoup that cost.

Now they have recovered $206 billion, restitution for all the costs taxpayers were forced to bear. Who should get that money?

Obviously, the taxpayers.

In New York, Senator-elect Charles Schumer proposes using settlement proceeds to reduce property taxes statewide. In Massachusetts, state Senator Robert Hedlund has introduced a bill to rebate the money to the public by widening the personal exemption on the income tax. Schumer is an ardent liberal; Hedlund is a staunch conservative. Clearly, turning the tobacco windfall back to the taxpayers is a matter not of ideology but of honesty.

But honesty has never been the strong suit of the antitobacco zealots. Frequently they are hypocritical, driven by deeply selfish motives: lucrative fees for the lawyers, popularity for the politicians, and power for the public-health bureaucrats.

No surprise, then, that the tobacco-haters have been quick to squelch any talk of returning the tobacco money to the public.

"We never had any doubts there would be a feeding frenzy," says the spokesman for the Commonwealth's outgoing attorney general, Scott Harshbarger. Greg Connolly, head of the state's tobacco control program, warns of legislators treating the windfall as "found money," predicting dismissively: "Someone will be in there saying, 'Look, now you can cut the income tax down to 5 percent.'"

But the equities here are clear. State programs to combat smoking are awash with money, frequently from steep tobacco taxes. Government budgets in general are embarrassingly flush. In Massachusetts, spending races far ahead of inflation, yet so much revenue is pouring in that the state has run back-to-back billion-dollar surpluses. Meanwhile, the tax burden on average citizens presses down more heavily than ever. If the tobacco money belongs to anybody, it belongs to the taxpayers. Doubt the good faith of politicians who claim otherwise.

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