Following Suit

Clinton wants to stick it to smokers again.


When Attorney General Janet Reno testified before the Senate Judiciary Committee in April 1997, Ted Kennedy noted that four of his colleagues had written a letter urging her to imitate the states that were suing the tobacco companies. The Massachusetts Democrat asked her about the possibility of recovering money spent on smoking-related medical expenses under Medicare and other federal programs.

"What we have determined," Reno replied, "was that it was the state's cause of action and that we needed to work with the states, that the federal government does not have an independent cause of action." Similarly, a Justice Department spokesman told the Bergen County Record that "right now, it would seem we don't have the authority to sue."

In August 1998, the Los Angeles Times reported that "the idea of filing a Medicare recovery lawsuit…was rejected, in part because Justice attorneys were concerned that the government lacked legal standing to bring such a suit." The article quoted an outside attorney (presumably a plaintiff's lawyer) who dismissed the skeptics as "nervous Nellies" for worrying about such a minor issue.

President Clinton seems to have a similar attitude. Though he said in his State of the Union address in January that he plans to sue after all, the Justice Department still isn't sure exactly why. Reno is assembling a task force to come up with a justification.

That may be hard. Long after the hazards of smoking received wide attention, the federal government continued to profit from the tobacco trade through taxes and to actively participate in it by distributing cigarettes to servicemen. For decades, it has forced taxpayers to subsidize other people's health care, knowing that some of those people would smoke and get sick as a result.

Now the administration wants to blame the tobacco companies for that policy. It wants to allocate the blame based on statistical models and market share, and it doesn't want to be inconvenienced by the fact that people know smoking is risky but choose to do it anyway.

Two years ago, the Justice Department apparently concluded that federal law did not permit such a money grab. Last year, there was talk of seeking legislation to authorize it. Suddenly, that's not necessary anymore.

"I'm convinced the decision to file suit was a legal one, not a political one," Matthew Myers, vice president of the Campaign for Tobacco-Free Kids, told USA Today. Myers probably also believes that Clinton and Monica Lewinsky were just good friends.

For the rest of us, though, it's clear that the relevant laws have not changed since the spring of 1997. To explain the administration's reversal, we have to look elsewhere.

By agreeing to settle the state lawsuits for $246 billion, Philip Morris et al. showed that you don't need a persuasive legal theory to squeeze money out of the tobacco industry. You just need staying power, coupled with the possibility of a catastrophic damage award. The Clinton administration is expected to seek more in damages–"hundreds of billions," the president said–than all the states combined.

Meanwhile, the failure of tobacco legislation in the summer of 1997, along with a federal appeals court ruling that the Food and Drug Administration does not have jurisdiction over cigarettes, has led anti-smoking activists to pursue policy changes through litigation. Emboldened by last fall's settlement with the states, which included restrictions on advertising and promotion, they want more concessions, such as FDA authority and industry fines for underage smoking.

This strategy of substituting consent decrees for legislation, which has been imitated by the cities that are now suing gun manufacturers, circumvents constitutional limits–the First and Second Amendments, for instance–as well as the democratic process.

Supporters of tobacco litigation like to pretend they are punishing evil corporations, but in fact it is smokers, the alleged victims of the cigarette companies, who pay for the lawsuits through higher prices. A federal settlement would impose what amounts to yet another tax hike on smokers, who are already reeling from recent increases in state levies and the price jump that followed the industry's deal with the states. Add the 15-cent increase approved by Congress in 1997 and the 55-cent hike Clinton is seeking, and the average price of cigarettes could rise to $4 or $5 a pack, compared to about $2 in 1997.

This burden falls disproportionately on people of modest means, who are more likely to smoke and who spend a larger share of their income on cigarettes when they do. More than half of the revenue from cigarette taxes comes from people with annual incomes below $30,000, more than a third from people making less than $20,000 a year. Yet Republicans who say they hate tax hikes and Democrats who claim to oppose regressive taxation somehow don't mind sticking it to this despised minority.

The explicit and de facto taxes on tobacco far exceed any credible estimate of the cost that smoking imposes on the rest of us. In 1989, when the average cigarette tax was just 38 cents a pack, researchers at the RAND Corporation concluded that it more than covered the habit's net external costs. The Congressional Research Service reached the same conclusion in 1994.

In fact, it increasingly looks like smokers are actually saving taxpayers money because they do not live as long as nonsmokers. In a 1994 paper, economist W. Kip Viscusi, then at Duke and now at Harvard, found that "the cost savings that results because of the premature deaths of smokers through their lower Social Security and pension costs will more than compensate for the added costs imposed by smokers….On balance there is a net cost savings to society."

That may be true even without considering Social Security: A 1997 study in The New England Journal of Medicine found that, if everyone stopped smoking, total medical spending would go up rather than down. In short, even if we accept the premise that public health insurance gives the government a license to tax risky products, smokers do not deserve the treatment they are getting. If anything, they deserve a rebate.