A Ballot Committee of Citizens for Limited Taxation


Boston Globe
Monday, April 12, 1999

About the Tobacco Money
By Jeff Jacoby

The first checks in the $246 billion settlement between the cigarette makers and the states will soon be cut, and bureaucrats and lobbyists are banging their spoons on the table, demanding the money -- usually in the name of "the children" -- for their pet projects. The loudest clamor comes from those who want rich new subsidies for antitobacco programs -- everything from don't-smoke TV commercials to paying firefighters to lecture schoolchildren about the dangers of smoking.

But amid the din and drone of all this special-interest pleading, you can also hear voices lifted in support of the proposition that the only legitimate use for the settlement money is to repay the taxpayers who advanced it in the first place.

"Tax-and-spenders are salivating at the prospect of $8.1 billion in tobacco settlement bucks swelling the state treasury for 25 years to come," editorializes the Detroit News. "The lung lobby can hardly wait to launch yet more anti-smoking programs. But every penny rightfully belongs back in taxpayers' pockets by way of a tax cut."

New York's new US senator, Charles Schumer, urges his state "to use $9 billion ... of the settlement to reduce county property taxes ... because this is the amount that rightly belongs to property taxpayers in the counties outside of New York City who bore much of the cost of treating tobacco illnesses."

The head of the Center of the American Experiment, a Minneapolis think tank, writes: "Minnesota's $6 billion tobacco free-for-all is about to begin. Folks, get ready to witness the boondoggle of the century. Forget the fact that the tobacco lawsuit was waged in the name of the taxpayers, ostensibly to compensate them for the smoking-related costs they have borne. At this moment, organizations ranging from HMOs to ad agencies to schools are lined up 12 deep to grab a piece of the mind-boggling tobacco windfall for themselves."

In South Carolina, Attorney General Charles Condon is blunt. "These funds -- the $2.2 billion designated for South Carolina -- are reimbursements -- reimbursements to the taxpayers of our state for dollars already spent. It would be a terrible injustice if those funds were used to pay for more government programs and more bureaucracy, or to grow the government in any way.

And from Citizens for Limited Taxation in Massachusetts, a perfect simile:

"The taxpayers should get back the tax dollars they paid for Medicaid-funded treatment of smoking-related illnesses," says CLT's executive director, Barbara Anderson. "We are the aggrieved party here. We are like an assault victim who pays his medical bills, pays his lawyer to sue the perpetrator, wins a court settlement, then learns that the settlement money will be used to provide self-defense lessons for whoever wants them."

The states sued the tobacco companies on the theory that they were entitled to "reimbursement" for the losses they incur in treating smokers who get sick. But there are no losses! Most states collect far more in tobacco taxes than they pay out in medical costs to treat smoking-related illnesses. Massachusetts, for example, spends about $200 million annually on health care for smokers. But it takes in more than $300 million per year in tobacco excise and sales taxes. Far from depleting the state treasury, smokers enrich it with a $100 million annual surplus.

As it is, states can't spend their revenue fast enough these days; statehouse budgets are running the biggest surpluses in 25 years. To this gusher of money -- all of it confiscated in one form or another from taxpayers -- comes the added windfall of the tobacco settlement, which for most states will be roughly equal to the amount they already collect in cigarette taxes.

These funds belong to the public. State governments have no defensible claim on them. It was Joe and Jane Taxpayer who laid out the cash for the expenses now being "reimbursed;" it is Joe and Jane Taxpayer to whom that cash should now be returned. As a matter of logic and morality, the case for using the tobacco jackpot to cut taxes is overpowering. No doubt that is why state officials and anti-smoking activists keep yelling about "the children" and how Big Tobacco is trying to kill them: anything to keep the subject from changing to tax relief.

One of the great perversities of the governmental war on smoking is the extent to which government profits from smoking. Jacob Sullum highlights the astonishing numbers in the May issue of Reason magazine. Last year, the tobacco industry's profit on a pack of cigarettes sold in the United States was 23 cents. On the same pack, the federal government collected 24 cents in taxes and the states collected an average of 36 cents. Incredibly, 72 percent of the net proceeds from tobacco sales goes not to Big Tobacco but to Big Government.

No wonder even vehemently antismoking politicians never call for banning cigarettes outright: They don't want to kill the goose that gives them so many golden eggs.

Arguments can be made for and against tobacco taxes. But the settlement fund is not a tax. If the attorneys general meant what they said, it is a reimbursement -- a repayment of money that the taxpayers originally fronted. When those settlement checks start coming in, it is those taxpayers to whom they should be endorsed.

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