Jewish World Review Sept. 26, 2002 / 20 Tishrei, 5763
In the 1990s, states sued tobacco companies, ostensibly to recoup costs to them of their residents' smoking. Put plainly, which is not how states like to have it put, the primary aim was to recoup the cost of treating illnesses related to the legal use of a legal product universally known to pose health hazards. However, smoking may be self-financing, perhaps even a net financial gain to government. Cigarettes are the most heavily taxed consumer product, and one in three smokers dies prematurely, before collecting pensions and medical and nursing-home entitlements they would have received had they lived longer.
There are two other rickety premises on which the argument for extracting $246 billion from tobacco companies rests. One is that tobacco is so addictive that stopping is not an option. The other is that people are unaware--because of industry disinformation--that smoking is hazardous. However, about as many Americans are former smokers as are smokers. And the industry's purported disinformation campaign must be the most unsuccessful such campaign in history.
W. Kip Viscusi of Harvard Law School cites survey data (in his book ``Smoke-Filled Rooms: A Postmortem on the Tobacco Deal'') showing that smokers substantially overestimate the dangers of smoking. They say, for example, that more than 40 percent of smokers will get lung cancer, whereas actually about 15 percent do.
Critics note that the survey data was gathered by tobacco companies, for whom Viscusi worked as a consultant on the subject of risk assessments by the public. He responds by inviting skeptics to examine his data and emulate his methodology.
Oregon has just become the 19th state this year to raise cigarette taxes, which now range from Virginia's 2.5 cents per pack to New York's $1.50. New York City's Mayor Michael Bloomberg has raised the city tax from eight cents to $1.50, so a typical pack bought in the city costs $7.50.
Studies suggest that a 10 percent tax increase produces a 5 percent decrease in smoking, and that cigarette taxes are not as regressive as they seem because poorer smokers are especially apt to respond to tax increases by quitting smoking. Furthermore, MIT economists Jonathan Gruber and Sendhil Mullainathan say their data indicate that increases in cigarette taxes increase happiness among the 25 percent of Americans who still smoke. These smokers are pleased to be pushed to do something they had wanted to do but failed to do--quit.
Bloomberg hopes this dynamic will make the revenue from the city's cigarette taxes negligible. But there may be another reason why revenues will be small. Jacob Sullum, author of ``For Your Own Good: The Anti-Smoking Crusade and the Tyranny of Public Health,'' notes that smokers have alternatives to paying Bloomberg's taxes. They can buy cigarettes in the suburbs (sales are soaring in Westchester County just north of the Bronx), or online (a $7.50 pack for $2.70) or from smugglers. In 2000 the FBI arrested 18 people accused of smuggling cigarettes from North Carolina (state tax: 5 cents a pack). They allegedly were raising money for the terrorist organization Hezbollah.
If smoking policy were still primarily a public health policy, cigarette taxes would be calibrated to produce ``sticker shock'' just short of what stimulates smuggling, and to produce revenues trending toward zero. But with states facing their worst budget problems in a decade, many are becoming as addicted to cigarette tax revenues as some smokers are to cigarettes. These states have a large interest in preserving a large number of smokers.
The 1998 agreement between tobacco companies, state attorneys general and trial lawyers (their fees: $13 billion--so far) will pay out the $246 billion over 25 years, and states are supposed to use significant portions of their proceeds to discourage smoking. However, some states are selling all or portions of their future payments at a discount to investors (Wisconsin sold its entire $5.9 billion 25-year windfall for $1.59 billion) and applying their reduced settlements to, well ...
About 5 percent paid out so far has gone to anti-smoking measures. New York has spent some settlement money on a sprinkler system for an upstate golf course. Alabama has used some money to discourage satanic worship in public schools. Nevada is using some money to convert its public television stations to digital broadcasting. North Carolina has devoted almost three-fourths of its money to measures for the production and marketing of ... tobacco.
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