The States' Tobacco Addiction - The Orange Mane

W*GS · 01-02-2006, 08:37 AM

(I don't often agree with Will, but here he's on-target 100%).

The States' Tobacco Addiction
By George F. Will
Sunday, January 1, 2006; B07

Philip Morris USA recently got the Illinois Supreme Court to overturn a gigantic judgment against it in a suit that had originated in a place -- Madison County, Ill. -- that few could locate on a map. The court's ruling resulted in this Wall Street Journal headline: "Tobacco-Revenue Munis Get a Lift." This episode illuminates American governance today.

Philip Morris is America's largest maker of cigarettes, a product legal to use but problematic to merchandise legally. Cigarettes are stigmatized by common sense and all state governments. But because those governments are increasingly addicted to cigarette tax revenue, the governments must be careful not to make cigarettes so expensive they do not sell well.

Madison County, located along a bend in the Mississippi River near St. Louis, elects its judges, some of them very friendly to plaintiffs' lawyers who prosper from class action lawsuits. In 2003 a county court held that Philip Morris deceived 1.14 million current and former Illinois smokers into believing that cigarettes labeled "light" and "low tar" are safer than regular cigarettes. Without blaming Philip Morris for any illnesses, the purchasers of these products accused the company of fraud. A Madison County judge exuberantly awarded them $10.1 billion in compensation. The 0.1 was a nice touch, suggesting -- speaking of fraud -- scientific precision.

But the Federal Trade Commission has ratified the use of the light and low-tar labels, and Illinois law sensibly says that companies cannot be penalized for conduct authorized by a regulatory body. So the Illinois Supreme Court, in a 4 to 2 ruling, vacated the $10.1 billion judgment. Two of the four justices in the majority also argued that the judgment should be overturned because the plaintiffs had not demonstrated that they had been harmed by Philip Morris's actions. That principle could spoil the fun of the asbestos litigation racket, in which some plaintiffs collect even though they have no symptoms of any ailments associated with exposure to asbestos.

The Illinois Supreme Court's ruling stimulated the market for "tobacco-revenue munis." Those are municipal bonds backed by tobacco revenue streams resulting from a real fraud -- the Master Settlement Agreement. In 1998, 46 states conspired to seize $246 billion from companies that sell products made from a commodity -- tobacco -- the cultivation of which was then subsidized by the federal government. Tobacco subsidies totaled $528 million from 2000 through 2004; then the government paid $10.1 billion -- that number again -- to terminate the tobacco quota system.

Under the MSA, the states are scheduled to get their portions of the pot over many years. But deferral of gratification is un-American, so some states, eager to get their loot, have "securitized" their expected portions. Securitization involves selling bonds backed by the anticipated revenue.

The MSA is a deal struck between the state attorneys general and trial lawyers. For the latter, it was a financial windfall, netting about $13 billion in fees that sometimes amounted to tens of thousands of dollars per hour of work. For the former, it was a political windfall, enabling their states to finance this and that with billions paid by smokers, who are disproportionately low-income people.

The MSA rests on the fraudulent claim that smoking costs the states huge sums, principally because of health care costs. Actually, smoking makes money for governments, for two reasons. Cigarettes are the world's most heavily taxed consumer product (state taxes range from 7 cents to $2.46 per pack; the federal tax is 39 cents). And many smokers die prematurely from smoking-related illnesses, curtailing their receipt of entitlements for the elderly.

There is one problem with the states' plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): "No state shall, without the consent of Congress, . . . enter into any agreement or compact with another state." A federal district court is being asked to declare that 46 states have done just that.

The states' ability to continue treating the tobacco industry as a "budgetary Alaska" -- the last frontier for exploitation -- depends on brisk sales of cigarettes far into the future. So all 50 states, which in 2004 reaped $12.3 billion in cigarette taxes, have an incentive to carefully calibrate these taxes so as to maximize revenue. They want high taxes, but not high enough to cause large numbers of smokers to quit the habit that is so lucrative to states.

The state governments seem to be calibrating cleverly: The adult smoking rate has not fallen much recently. So we have here a rarity -- a government success story. Of sorts.

georgewill@washpost.com

© 2005 The Washington Post Company

REB · 01-02-2006, 09:00 AM

No surprise that the Government is full of a bunch of hypocrits(sp?) It's all about the money man. Always professing one thing while doing the opposite. It surprises me that they haven't legalized marijuana yet(which I think they should). They could make billions more taxing the crap out of that.

Garcia Bronco · 01-02-2006, 01:42 PM

Quote:

Originally Posted by REB

No surprise that the Government is full of a bunch of hypocrits(sp?) It's all about the money man. Always professing one thing while doing the opposite. It surprises me that they haven't legalized marijuana yet(which I think they should). They could make billions more taxing the crap out of that.

They would make some cash on a pot tax...but many would grow their own

TheDave · 01-02-2006, 03:44 PM

Quote:

Originally Posted by Garcia Bronco

They would make some cash on a pot tax...but many would grow their own

I couldn't disagree more... People can grow all kinds of fruits, vegetables, spices, etc. That puts little to no dent in the retail sales of such goods. Marijuana could be produced and marketed for pennies. You could tax it at a rate of 500% and probably do nothing to the supply/demand side of the equation. Problem is it will never be legalized in such a manner, JMO, but there is no way that the alcohol, tobacco, and/or pharmaceutical lobbies would ever allow it.

kappys · 01-03-2006, 10:59 AM

Quote:

Originally Posted by W*GS

The MSA rests on the fraudulent claim that smoking costs the states huge sums, principally because of health care costs. Actually, smoking makes money for governments, for two reasons. Cigarettes are the world's most heavily taxed consumer product (state taxes range from 7 cents to $2.46 per pack; the federal tax is 39 cents). And many smokers die prematurely from smoking-related illnesses, curtailing their receipt of entitlements for the elderly.

[email

Great claim to make, but unless he can back it by some truth I wouldn't even begin to believe this claim.

1) Smoking causes lung cancer - lung cancer is extremely pricey to treat whether it is surgery, chemotherapy, radiation, etc.

2) SMoking causes COPD - requiring multiple hospitalizations, stays in the ICU on ventilators, medications, tremendous hours lost from work.

3) Smoking causes heart disease - #1 killer of people, #1 cost of health care dollars, #1 cause of days lost to work.

This isn't even a complete list, but already the top causes of death are all directly caused by smoking, often to people who are still young enough to work productively if they didn't have these ailments.

bendog · 01-03-2006, 12:38 PM

Quote:

Originally Posted by kappys

Great claim to make, but unless he can back it by some truth I wouldn't even begin to believe this claim.

1) Smoking causes lung cancer - lung cancer is extremely pricey to treat whether it is surgery, chemotherapy, radiation, etc.

2) SMoking causes COPD - requiring multiple hospitalizations, stays in the ICU on ventilators, medications, tremendous hours lost from work.

3) Smoking causes heart disease - #1 killer of people, #1 cost of health care dollars, #1 cause of days lost to work.

This isn't even a complete list, but already the top causes of death are all directly caused by smoking, often to people who are still young enough to work productively if they didn't have these ailments.

Wags may be right in terms of economics. People will die of extended illness anyway, and cigs just kill them quicker. However, that's hardly a moral position, and the tobac companies both hid info on addiction and actually sought to make cigs as addictivie as possible, and MARKET to children. Cigs should be heavily taxed, even more heavily than they are, but the tobac lobby succeeded in keeping taxes lower than they might have been, so the attorney generals did an end run, and essentially upped the tax via the courts.

W*GS · 01-03-2006, 02:34 PM

The cost to treat diseases caused by smoking is more than absorbed by the taxes the states and federal government impose on cigarettes.

Cigarettes are a net profit for the government (and society as a whole) - the trick for the State is to continue to tax cigarettes heavily but not so heavily as to discourage smoking. The only thing more addicted to cigarettes than smokers are governments addicted to cigarette taxes.

kappys · 01-03-2006, 11:03 PM

Quote:

Originally Posted by W*GS

The cost to treat diseases caused by smoking is more than absorbed by the taxes the states and federal government impose on cigarettes.

Cigarettes are a net profit for the government (and society as a whole) - the trick for the State is to continue to tax cigarettes heavily but not so heavily as to discourage smoking. The only thing more addicted to cigarettes than smokers are governments addicted to cigarette taxes.

Again figures are needed to really confirm this. I'm not accepting based on any assertions. I will look around a bit tomorrow if I get some free time at work.

That said Ben, smoking causes these illnesses to occur at much younger ages - frequently leading to young people who would otherwise be working to now become leeches on society. This has a huge negative impact. In addition, if you are 80 and develop heart disease versus 60(due to smoking), then there is going to be a big overall difference in cost. The 80 year old won't have that many years left, but the 60 year old could likely live for some time given current advances in medical care. couple that with the fact that most people I've met 80 and over who have serious illnesses don't want to pursue extensive health care while younger people generally do. Most of the cost from health care can be attributed to more risky invasive procedures and the accompanying cocst for hospitalization and complications.

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01-02-2006, 08:37 AM	#1
W*GS Ring of Famer Join Date: Jan 2004 Location: Earth Posts: 19,601	The States' Tobacco Addiction (I don't often agree with Will, but here he's on-target 100%). The States' Tobacco Addiction By George F. Will Sunday, January 1, 2006; B07 Philip Morris USA recently got the Illinois Supreme Court to overturn a gigantic judgment against it in a suit that had originated in a place -- Madison County, Ill. -- that few could locate on a map. The court's ruling resulted in this Wall Street Journal headline: "Tobacco-Revenue Munis Get a Lift." This episode illuminates American governance today. Philip Morris is America's largest maker of cigarettes, a product legal to use but problematic to merchandise legally. Cigarettes are stigmatized by common sense and all state governments. But because those governments are increasingly addicted to cigarette tax revenue, the governments must be careful not to make cigarettes so expensive they do not sell well. Madison County, located along a bend in the Mississippi River near St. Louis, elects its judges, some of them very friendly to plaintiffs' lawyers who prosper from class action lawsuits. In 2003 a county court held that Philip Morris deceived 1.14 million current and former Illinois smokers into believing that cigarettes labeled "light" and "low tar" are safer than regular cigarettes. Without blaming Philip Morris for any illnesses, the purchasers of these products accused the company of fraud. A Madison County judge exuberantly awarded them $10.1 billion in compensation. The 0.1 was a nice touch, suggesting -- speaking of fraud -- scientific precision. But the Federal Trade Commission has ratified the use of the light and low-tar labels, and Illinois law sensibly says that companies cannot be penalized for conduct authorized by a regulatory body. So the Illinois Supreme Court, in a 4 to 2 ruling, vacated the $10.1 billion judgment. Two of the four justices in the majority also argued that the judgment should be overturned because the plaintiffs had not demonstrated that they had been harmed by Philip Morris's actions. That principle could spoil the fun of the asbestos litigation racket, in which some plaintiffs collect even though they have no symptoms of any ailments associated with exposure to asbestos. The Illinois Supreme Court's ruling stimulated the market for "tobacco-revenue munis." Those are municipal bonds backed by tobacco revenue streams resulting from a real fraud -- the Master Settlement Agreement. In 1998, 46 states conspired to seize $246 billion from companies that sell products made from a commodity -- tobacco -- the cultivation of which was then subsidized by the federal government. Tobacco subsidies totaled $528 million from 2000 through 2004; then the government paid $10.1 billion -- that number again -- to terminate the tobacco quota system. Under the MSA, the states are scheduled to get their portions of the pot over many years. But deferral of gratification is un-American, so some states, eager to get their loot, have "securitized" their expected portions. Securitization involves selling bonds backed by the anticipated revenue. The MSA is a deal struck between the state attorneys general and trial lawyers. For the latter, it was a financial windfall, netting about $13 billion in fees that sometimes amounted to tens of thousands of dollars per hour of work. For the former, it was a political windfall, enabling their states to finance this and that with billions paid by smokers, who are disproportionately low-income people. The MSA rests on the fraudulent claim that smoking costs the states huge sums, principally because of health care costs. Actually, smoking makes money for governments, for two reasons. Cigarettes are the world's most heavily taxed consumer product (state taxes range from 7 cents to $2.46 per pack; the federal tax is 39 cents). And many smokers die prematurely from smoking-related illnesses, curtailing their receipt of entitlements for the elderly. There is one problem with the states' plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): "No state shall, without the consent of Congress, . . . enter into any agreement or compact with another state." A federal district court is being asked to declare that 46 states have done just that. The states' ability to continue treating the tobacco industry as a "budgetary Alaska" -- the last frontier for exploitation -- depends on brisk sales of cigarettes far into the future. So all 50 states, which in 2004 reaped $12.3 billion in cigarette taxes, have an incentive to carefully calibrate these taxes so as to maximize revenue. They want high taxes, but not high enough to cause large numbers of smokers to quit the habit that is so lucrative to states. The state governments seem to be calibrating cleverly: The adult smoking rate has not fallen much recently. So we have here a rarity -- a government success story. Of sorts. georgewill@washpost.com © 2005 The Washington Post Company

01-02-2006, 09:00 AM	#2
REB LP.org/L4L.org "This one's for John!" 3:16 Join Date: Aug 2001 Location: 'I guess he'd rather be in Colorado' Posts: 8,723	No surprise that the Government is full of a bunch of hypocrits(sp?) It's all about the money man. Always professing one thing while doing the opposite. It surprises me that they haven't legalized marijuana yet(which I think they should). They could make billions more taxing the crap out of that.

01-03-2006, 02:34 PM	#7
W*GS Ring of Famer Join Date: Jan 2004 Location: Earth Posts: 19,601	The cost to treat diseases caused by smoking is more than absorbed by the taxes the states and federal government impose on cigarettes. Cigarettes are a net profit for the government (and society as a whole) - the trick for the State is to continue to tax cigarettes heavily but not so heavily as to discourage smoking. The only thing more addicted to cigarettes than smokers are governments addicted to cigarette taxes.