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80 IRET Congressional Advisory 1 (1999)

handle is hein.taxfoundation/iretcgadv0077 and id is 1 raw text is: May 4, 1999 No. 80 THE FEDERAL TOBACCO SUIT: TAXATION THROUGH LITIGATION INSTEAD OF LEGISLATION The Clinton Administration is proposing to sue tobacco companies to recover the costs that smoking supposedly imposes on the federal government for the Medicare and Medicaid programs. The President still wants a tobacco tax increase for the same purpose; his Fiscal Year 2000 Budget promises to seek an additional $0.55 cents a pack. (This is on top of the $0.15 a pack increase being phased in between 2000 and 2002 under the so-called Taxpayer Relief Act of 1997). The tax hike might not get very far. Last year, Congress retreated from proposals to boost the tax by another $1.10 to $1.50 a pack. At a time of projected budget surpluses, it was hard to justify the proposals as anything other than what they were, an easy money grab that would have fallen mainly on low and middle income smokers, and Whether money smokers, tobacco tobacco company e shareholders in soi either way. that was stirring unexpectedly strong resentment among its potential victims. Another round this year would not be any more popular. Institute for Research on the Economics of Taxation The Administration may be hoping that a lawsuit against the tobacco companies will not encounter as much Congressional opposition as a tax hike, since any adverse price effect on smokers would be indirect, and, if noticed, could be blamed on the courts. Nonetheless, a lawsuit does require some action by Congress. The Administration has asked it to approve an appropriation of $20 million for the Justice Department to start work on the case. Whether the government takes money from the tobacco companies through an increase in the cigarette excise tax or through a lawsuit, the result will be an increase in the cost of cigarettes. A lawsuit is simply a tax imposed by litigation instead of legislation. The burden of any damage award or tax hike will fall on smokers, tobacco growers, and tobacco company employees and shareholders in some proportion either way. The Administration's contention that smoking imposes additional the government takes from the tobacco costs on the Medicare and Medicaid systems, and that smokers should pay more for cigarettes as a result, is as wrongheaded an excuse for a lawsuit as it is for a tobacco tax hike. Study after study has found that current tobacco excise taxes raise government revenues by substantially more than smoking-related illnesses raise government outlays.1 grower-s, and Smoking may increase imployees and outlays somewhat in ne proportion government funded health programs, but not by the full cost of treating these disorders. The chief effect of smoking- related illness is to change the timing and type of illness, but not necessarily the lifetime cost of treatment, of a Medicare or Medicaid enrollee. People who die at age 65 from a smoking-related ailment do not die at age 75 from companies through an increase in the cigarette excise tax or through a lawsuit, the result will be an increase in the cost of cigarettes. A lawsuit is simply a tax imposed by litigation instead of legislation. The burden ... will fall on IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www.iret.org

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