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91 IRET Congressional Advisory 1 (1999)

handle is hein.taxfoundation/iretcgadv0088 and id is 1 raw text is: Congressioa Advisry September 30, 1999 No. 91 THE FEDERAL TOBACCO SUIT: THE ADMINISTRATION CARRIES OUT ITS THREAT OF TAXATION THROUGH LITIGATION The Justice Department has filed a civil lawsuit against the tobacco industry to recover some or all of the $20 billion yearly that the Administration claims smoking adds to government health care expenditures for Medicare The lawsuit recipients, veterans, and federal imposed by 1 employees. President Clinton legislation. TI had included the suit among On smokers, a many Administration proposals tobacco comp,, in his January 1999 State of the Union Address. shareholders either way. The President also wants a tobacco tax increase for the same purpose; his Fiscal Year 2000 Budget sought an additional cigarette excise tax of $0.55 cents a pack. This proposed tax hike would be 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. It would also be on top of the tobacco industry's massive $248 billion settlement last year with the states. Despite little support in Congress for the tax hike, the Administration continues to push for the revenues. In early September, White House spokesman Barry Toiv said that the added taxes could help finance appropriations bills and predicted that politically, the Republicans will see that this makes sense. is S itigati ie but bacce any e in sol Nevertheless, the tax hike is unlikely to get very far. Last year, Congress rejected proposals to boost the cigarette tax by another $1.10 to $1.50 a pack. With the federal budget surpluses that were being projected last year, 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 that was stirring unexpectedly strong resentment among its potential victims. This year, the projected budget surpluses are even larger and federal revenues as a share of people's incomes have reached a record level. (And now the Administration announces that the surplus for fiscal year 1999 will be $115 billion, $16 billion higher than it predicted in July.) The $792 billion tax cut that the President just vetoed expresses the majority view in Congress that taxes are too high, too anti-growth, and too complicated, and that they should be reduced rather than increased. The Administration may be hoping that a lawsuit imply a tax against the tobacco companies on instead of will not encounter as much dCongressional opposition as a Wtax hike, since any adverse ) growers and price effect on smokers would be indirect, and, if noticed, ne proportion could be blamed on the courts. Nonetheless, a lawsuit this expensive probably 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. Although Congress denied the money request over the summer, a Justice Department official speculated that Congress might agree now that the suit has been filed. A Clinton Administration official claimed that if Congress still refuses, the Justice Department could locate funds elsewhere in the budget to pursue the lawsuit. Whether the government takes money from the tobacco companies through an increase in the cigarette excise tax or through a lawsuit, the result Institute for Research on the Economics of Taxation 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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