Vice Profits

Urged to ban tobacco, Napoleon III is said to have remarked, "This vice brings in 100 million francs in taxes every year. I will certainly forbid it at once--as soon as you can name a virtue that brings in as much revenue."

The emperor was a bit more candid than contemporary politicians, who rail against tobacco even while profiting from it. Although the controversy over smoking is usually portrayed as a battle between selfless public servants trying to stamp out a deadly habit and evil corporations growing rich from their customers' folly, the truth is that the government makes more money from the cigarette business than the tobacco companies do.

In 1998, the industry's average profit on domestic cigarette sales was about 23 cents a pack. The federal tax was 24 cents, while the average state tax was 36 cents. Some of that tax revenue is earmarked for anti-smoking or health-related programs, but most of it simply goes into the general fund and is spent on whatever legislators deem worthy.

Government's share of the tobacco business is growing. The federal cigarette tax will hit 39 cents in 2002, and state taxes are also going up (California's rose by 50 cents in January). The states will rake in even more money--some $10 billion a year--from industry payments obtained through Medicaid lawsuits. Meanwhile, President Clinton says he plans a lawsuit demanding "hundreds of billions" from the industry, and he wants to raise the federal cigarette tax by another 55 cents.

In short, government is fast reducing Philip Morris et al. to the status of bit players in the tobacco trade. The terms of this partnership are clear: The government gets most of the money, and the cigarette companies get all of the blame.