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Announcing his state’s groundbreaking 1994 lawsuit against the tobacco companies, Mississippi Attorney General Mike Moore insisted that the litigation would recover money that the companies "rightfully owe to Mississippi taxpayers." Moore argued that tobacco companies should be forced to reimburse the state for the cost of providing health care services such as Medicaid to victims of smoking-related illnesses. That way, he claimed, "I can spare Mississippi taxpayers from paying medical bills that are the tobacco companies’ responsibility."¹ That was then, this is now.

Moore’s legal gambit proved successful. While tobacco legislation died at the federal level, Mississippi, Florida, Texas, and Minnesota worked out a $40 billion settlement.² Forty-six other states eventually filed tobacco suits of their own, leading to a massive $206 billion agreement in November 1998. The states are scheduled to receive these funds over the next twenty-five years, making the issue of how settlement money will be allocated an important long-term political question.

Politicians waged the so-called "tobacco wars" in the name of the taxpayers. Yet now that this long-shot bet has paid off, many of them are proposing a raft of new spending measures that will expand the role of government and strand future taxpayers in a sea of liabilities. Children’s health care, education, and loosely-defined "public health" programs represent the most popular initiatives. A number of states plan to or already have set up agencies or permanent trust funds devoted solely to the disbursement of tobacco funds. Largely forgotten in the rush to fund new programs are the taxpayers, for whom the tobacco settlement appears more likely to provide bigger government burdens rather than well-deserved tax relief.

The tobacco settlement set a number of troubling precedents. Many of the private lawyers representing the states, who won billions in legal fees, were major contributors or friends of the attorneys general responsible for their appointment. A number of states, such as Florida, California, and Maryland, ignored decades of precedent and passed laws specifically designed to bolster lawsuits against the tobacco companies. The prospect of huge settlements has already spurred copycat litigation, including the Justice Department’s pending action against the tobacco companies and the current wave of litigation against gun manufacturers. Finally, the tobacco settlement ushered in what former Clinton Labor Secretary Robert Reich approvingly terms the "era of regulation through litigation,"³ in which the courts impose burdensome regulations and taxes that would never win legislative approval.

In their lawsuits against the tobacco companies, the states argued that they should be reimbursed for the cost of treating the smoking-related illnesses of Medicaid patients. To be able to argue this point in court, many states first had to amend their tort law. Florida led the way with its 1994 Medicaid Third-Party Liability Act. The law provides a good example of the legal contortions performed in many states. Breaking with long-established legal precedent, the Florida statute:

• Barred "assumption of risk" and all other affirmative defenses;
• Allowed causation and damages to be determined by statistical analysis without the state even showing a link between a smoker’s illness and his use of tobacco products;
• Eliminated the requirement that the state identify "victims" injured by the companies; and,
• Suspended the statute of limitations.⁴

Led by Vermont and Maryland, other states followed the trend set by Florida. They, too, limited the need to identify individual victims of harm, allowed the use of statistics to prove causation, assessed liability based on market share, and forbade companies from arguing that individuals who smoke understand the risks involved. While many private citizens may disapprove of tobacco products, most would likewise disapprove of government’s arbitrary abrogation of legal rights based on such political considerations. As Doug Bandow notes, "If the U.S. is a nation of laws, as it claims to be, it cannot twist legal rules based on the lovability of the claimant . . ."⁵ With the cards stacked against them by states willing to amend their tort law, it comes as little surprise that the tobacco companies felt they had to reach a settlement or leave themselves open to perpetual liability lawsuits.

The novel legal theory behind tobacco litigation is that the government, forced to pay Medicaid costs for smoking-related illnesses, is a "victim." There are a number of problems with this supposition. First, the government has known the dangers of smoking and mandated warning labels on cigarettes since the mid-1960s. But rather than ban tobacco products, government has reaped hundreds of billions of dollars from taxing them. Additionally, state participation in Medicaid is at the discretion of elected officials. Being aware of the risks of tobacco use for at least the past thirty years, states could have excluded Medicaid coverage for illnesses determined to be smoking-related. Florida, which began the process of amending its tort law to foster lawsuits against Big Tobacco, can hardly claim to be a victim. The Florida prison system manufactured and even sold cigarettes during the 1970s and early 1980s. Yet the state hypocritically prohibited tobacco companies from introducing as evidence this "affirmative defense," by invoking the Medicaid Third-Party Liability Act.⁶

Supporters of high tobacco taxes and tobacco litigation claim that these remedies are necessary to cover the costs that smokers impose on society. Yet analysis of the cost-to-return ratio of smoking proves otherwise. Because they tend to die younger, smokers incur less long-term health care and retirement benefit costs.⁷ With all factors taken into account, smokers "cost" society only about half as much per pack as they pay in excise taxes. Duke University economist W. Kip Viscusi estimates this total saving to be 27.7 cents per pack -- and an even higher 32 cents per pack when applied to medical expenses alone.⁸ If the real motivation behind cigarette taxes is to pay for smoking-related illnesses treated at public expense, government should have been able to perform this function and still generate a healthy surplus. Instead of using these funds to treat smokers, however, revenue from tobacco taxes (often hidden in the cost of the product) is spent on a host of government programs that have nothing to do with smoking. Legislators have apparently decided that smokers, viewed by some as a politically incorrect group, should be forced to subsidize the welfare state.

Tobacco taxes fall disproportionately on the poor. Tax Foundation studies show that those making less than $30,000 per year shoulder 60 percent of the burden of tobacco taxes, while those making over $100,000 per year bear just 1-2 percent.⁹ To cover the cost of the tobacco settlement, cigarette prices will jump an extra 50 cents per pack.¹⁰ For the two pack a day smoker, that’s a significant tax hike of over $364 per year -- all to pay medical expenses more than covered by current cigarette excise taxes (see Figure 1). With increased federal and state tax increases on the horizon, a possible $2 tax hike would hit the same individual with an

enormous $1,460 added burden.¹¹ Any income tax increase of this magnitude would rightly cause an uproar if politicians attempted to sneak it through the legislature. But as one observer notes, "both taxes and tobacco companies are immensely unpopular; so lawmakers have taken the politically safe course of action by avoiding one and attacking the other."¹² In doing so, politicians force low-income Americans to bear the weight of this hidden form of taxation.

Government claims to be tobacco’s victim. Yet while politicians thunder righteously against addiction to nicotine, they are addicted to the revenues it produces, as a look at both state and federal budget proposals shows. In Maryland this year, Governor Parris Glendening proposed a $1 increase to the state’s existing 60-cent levy; a 30-cent per pack tax hike was ultimately enacted.¹³ Wyoming, which has posted average surpluses of $65 million (between 10% and 15% of total expenditures) over the past three years, is considering doubling the current state tobacco tax.¹⁴ President Clinton asked for a 55-cent-per-pack tobacco tax increase in his budget submission to Congress.¹⁵ Washington, D.C. Mayor Tony Williams is considering raising the tobacco tax to raise revenue for the city’s treasury. These tax increase proposals are made with platitudes about saving "the children," but studies show that most price hikes do little to prevent smoking among youth. ¹⁶ The assault on tobacco, it appears, is more about big government’s hunger for revenue than about combating smoking.

The sheer size of the $200 plus-billion tobacco windfall has prompted a number of entities, including the federal government, trial lawyers who litigated the case, local governments, and special interest groups to lobby for their share of tobacco settlement funds. While 46 states will not receive funds until next year, members of the hungry horde are already demanding their piece of the pie.

The federal government has claimed a right to collect 57 percent of tobacco settlement funds (the federal share of Medicaid) distributed to the states.¹⁷ The Department of Health and Human Services has indicated its intention to recoup funds,¹⁸ and President Clinton included $18.9 billion for tobacco recoupment in his five-year budget.¹⁹ From the outset of the tobacco litigation, attorneys general knew that their states could be liable for paying off the federal government, as well as administrative and other costs that experts warned would reduce the net recovery to only 15 percent of total "damages."²⁰ Ironically, a state that received over 70 percent of its Medicaid funding from the federal government -- and thus actually stood to lose money -- was Mississippi, the first state to file a tobacco suit.²¹ Faced with such illusory or even dubious benefits, one is forced to wonder why state attorneys general proceeded with their lawsuits.

Political calculations certainly played a role. As high-profile officials, attorneys general used the litigation as an opportunity to attack politically unpopular tobacco companies for their "illegal" business practices. They also scored points by promising to recover funds for the taxpayers. For maximum advantage, many attorneys general handed their state’s case over to private lawyers who had contributed to their political campaigns. For example, Mississippi Attorney General Mike Moore named Richard Scruggs, his top campaign contributor, as lead counsel for the state.²² Scruggs went on to work for 30 other states; he is scheduled to collect billions of dollars in fees. In Mississippi, where Mike Moore claimed to be undertaking litigation in the name of the taxpayer, trial lawyers who never set foot inside a courtroom will collect an astounding 35% of the state’s $4 billion settlement.²³

In just three states -- Florida, Texas, and Mississippi -- lawyers will receive more than $8 billion in legal fees out of a total $34 billion award.²⁴ The prospect of such a huge payday quite possibly led to questionable ethical behavior. Texas Attorney General Dan Morales is under investigation for soliciting funds from attorneys appointed to the case and for trying to help a friend who did almost no work on the case cash-in on the settlement. Of the five firms retained by Morales, four had contributed a total of $150,000 to his campaign fund.²⁵ An attorney that Morales tapped to represent Texas claims Morales solicited $1 million from lawyers he considered hiring for the effort.²⁶ These contributions proved a good investment, considering the plaintiff’s lawyers asked for $92,000 per hour for their "service" to the taxpayers.²⁷ In Florida, the tobacco settlement spurred a series of lawsuits by attorneys seeking to bolster their fees. A group sued to hold up the entire award until they received 25 percent of Florida’s $11.3 billion settlement, money that was supposed to fund health education programs.²⁸

"Public health" organizations are seeking to capture a significant portion of tobacco settlement funds. Ad hoc groups formed to lobby for increased health-care spending, such as the Breath of Fresh Air Coalition in Florida and the Campaign for a Healthy Minnesota, trot out a long wish list. Among their priorities are children’s health care, extending medical coverage to the uninsured, subsidizing the cost of prescription drugs, and funding home care for the disabled.²⁹ The Massachusetts Medical Society urges that the entire settlement be devoted to vaguely defined "unmet health needs."³⁰ The Children’s Defense Fund advocates spending tobacco settlement funds on child-care programs.³¹ These groups do not seem to care that none of these proposals expressly deals with smoking-related health issues, or taxpayer relief -- finding money for new programs appears to be most important. As Cecil Wilson, head of the Breath of Fresh Air Coalition notes, there is an "all-out battle for the funds" that the group wants to win.

As part of their efforts to keep the entire settlement, the states are now claiming Medicaid reimbursement was not the basis for tobacco litigation. Maryland, Virginia, and Pennsylvania are prepared to pass legislation instructing the federal government to keep its hands off state tobacco settlement money. Reflecting the rationale behind this measure, one Maryland Senator commented, "We might as well be as greedy as anybody."³² Along with groups such as the National Governors’ Association, National Association of Attorneys General, National Conference of State Legislatures, and National League of Counties, the states successfully lobbied to prohibit the federal government from recouping tobacco settlement funds.³³ Discussing the situation, Florida Sen. Bob Graham, a cosponsor of the original bill, commented (quite ironically) about the need to end "governmental gold-digging."³⁴ The measure rightly favors keeping money at the state rather than the federal level. The law also has another good intention -- to prevent "protracted and costly litigation" over the federal portion of the settlement.³⁵ Yet the federal government now claims that the states filed their lawsuits based on consumer fraud, antitrust, conspiracy, and racketeering violations. Such charges were decidedly not the cornerstone of most state suits, the inspiration for which was reimbursement for Medicaid and other medical treatment costs.³⁶

While the states seek to safeguard tobacco funds from the federal government, local governments are pursuing a share of the settlement. Several Texas counties and hospital districts have gone to court to be included in the deal, asking for $400 million.³⁷ These groups recently received a check for $300 million in settlement funds.³⁸ Texas Southern University recently filed a class-action lawsuit on behalf of students, former students, and nearby residents demanding a share of the $1 billion in tobacco settlement funds set aside for research universities.³⁹ New York City Mayor Rudolph Giuliani is floating a plan to raise "tobacco bonds" for schools. He calls for creation of a new debt-incurring agency to issue bonds based on expected tobacco revenue. This scheme will likely need legislative approval, but the Mayor hopes to proceed apace.⁴⁰ These local initiatives reflect the spirit of the tobacco litigation -- be careless what you wish for, and you are sure to get it.

State attorneys general claim that "States spend billions each year on medical care for smoking related illnesses and the industry payments, which will be made in perpetuity, (sic) will relieve taxpayers of the costs from future smoking-related illnesses."⁴¹ This paper has already demonstrated that smokers pay more in excise taxes than they "cost" society. Yet even so, how much of the tobacco settlement money will actually be dedicated to treating the costs of future illnesses related to smoking? And how much "relief" can taxpayers truly expect? An examination of actual and proposed tobacco settlement spending in the four states that reached separate agreements in 1997 -- Mississippi, Minnesota, Texas, and Florida -- indicates that the funds are likely to be spent on a variety of measures, and that there are dismal prospects for this money being returned to taxpayers.

Mississippi has stressed its commitment to smoking prevention. The state formed an organization called Partnership for a Healthy Mississippi that accepts proposals from private groups that seek to "create a healthier Mississippi and reduce tobacco use among Mississippi youths."⁴² Grantees include local 4-H clubs that hope to educate young people about the dangers of tobacco use.⁴³ While this spending at least demonstrates an intent to address smoking, Mississippi has failed to address the original issue of taxpayer relief that Attorney General Moore championed when he brought the state’s suit in 1994. Additionally, only $62 million of the state’s $4 billion settlement has been set aside for these antismoking programs. The rest is in a trust fund while legislators decide how to spend it. "As you might imagine," Moore said in reference to the scramble for these funds, "it’s been a jump ball."⁴⁴

Minnesota Gov. Jesse Ventura has proposed the creation of three foundations endowed with $1.3 billion of the state’s $6.1 billion tobacco settlement.⁴⁵ The largest portion of these funds, $600 million, would go to the Minnesota Families Foundation, the remainder to medical research and public health programs. Dispersing interest earnings only, the Families Foundation is designed to distribute money to charities, churches, and other private organizations that apply for grants to help people making the transition from welfare do such things as make a down payment on a house or car.⁴⁶ Senate Majority Leader Roger Moe, who according to his own press release is working closely with the Smoke-Free 2000 Coalition, praised the idea of a trust fund and termed the possibility of using tobacco settlement money for tax relief a "costly mistake."⁴⁷ Yet there is some support among Minnesota elected officials for returning the tobacco settlement to taxpayers. House Speaker Steve Sviggum believes that Minnesota taxpayers should be compensated and has proposed using a portion of the settlement to eliminate the health provider tax (which residents pay each time they seek medical treatment) that funds subsidized insurance for low-income Minnesotans.⁴⁸

Expanding health care is the top priority in Florida and Texas. Texas received more than $1.2 billion in 1998, which former Attorney General Dan Morales earmarked mainly for a series of health-related programs.⁴⁹ A lawsuit brought by Texas Governor George Bush and several state legislators successfully challenged the Attorney General's right to dictate the fate of tobacco funds. The Texas Legislature is now handling the politically sensitive question of how to spend the rest of the state's settlement, and has already set aside $151 million per year for children's health insurance.⁵⁰ Florida Governor Jeb Bush has proposed the creation of the Lawton Chiles Tobacco Endowment for Children and Elders, using $1.1 billion in tobacco funds. The name recognition is fitting for Chiles, the late Governor whose major legacy was initiating Florida’s controversial lawsuit against the tobacco companies.⁵¹ According to Bush, the Foundation will fund the "Kidcare insurance program, child welfare, and our aging in place programs."⁵² Although Bush proposed cuts in property taxes and utility taxes, he made no mention of rebating the tobacco settlement in his State of the State address.

The push to establish foundations shows that the states may be serious about "investing" the tobacco settlement. Yet using public money to create new grant-making agencies raises a number of concerns:

• The presence of these r esources creates a permanent bidding-war atmosphere among groups competing for funding.
• The very funds that politicians claim are supposed to end reliance on government programs will actually foster a new class of government-dependent charities.
• Reliance on government funds poses a particular problem for religious charitable organizations because of potential separation of church and state conflicts.
• What controls will prevent politics from becoming involved in terms of grants, hiring, and the composition of foundation boards? In Alabama, for example, the Governor wants $3 billion to go into an "Alabama 21^st Century Fund" managed by a board made up of himself, his finance director, and the state treasurer.⁵³
• To whom will these new bureaucracies be accountable?
• Will losers in the grant process seek general revenues for their wish lists? Worse, will they sue if their demands are not met?

With all these questions remaining, the only thing that seems certain is that taxpayers will be the losers as government grows and spends more on new programs.

Most states seem determined to find creative ways to spend tobacco settlement funds. Proposals for allocations include establishment of foundations, insurance for poor children, education, balancing state budgets, and even creation of a statewide water and flood control system.⁵⁴ There has been no shortage of spending proposals in spite of the fact that the states are not scheduled to receive their first payments until June 30, 2000, or until 80 percent of states (based on population) receive final court approval.⁵⁵ While taxpayers are almost completely ignored, antismoking and smokers’ health programs have also been somewhat neglected. As the Campaign for Tobacco-Free Kids comments, "it is quite possible that only a very small, inadequate portion of the tobacco payments will be used to reduce the size of the tobacco problem."⁵⁶

Trust funds dominate the list of spending proposals for use of tobacco money, as the chart on the next page indicates. As of early March, however, only Idaho had enacted legislation putting the money in a trust fund.⁵⁷ Many of these trust fund proposals have a specific goal, such as creation of foundations in a number of states, expansion of children's health insurance in Alabama, help for struggling tobacco communities in Virginia, and health care for seniors and AIDS patients in Massachusetts.⁵⁸ Stressing "fiscal responsibility," many states (such as Mississippi) plan to spend only the interest generated by the trust fund.⁵⁹ Such caution is well- advised, considering that the federal government could still recoup about half of each state’s settlement dollars.

Owing to the unprecedented size of the settlement, there are high hopes for the use of tobacco funds. One newspaper editorial reflects a widely held view: "It [the settlement] gives state leaders a glorious opportunity to make a difference in people’s lives."⁶⁰ (Apparently this does not apply to the biggest single expense "in people’s lives" -- a tax burden exceeding 38 percent for a typical family.) The same piece goes on to offer a laundry list of spending suggestions, from antismoking programs to mental health to child-abuse prevention to insurance coverage for the poor. With all these needy and expensive programs to fund, elected officials are seeking to score political points by distributing tobacco money widely. Attempts by politicians to control the fate of settlement funds has caused conflict in states such as Utah, where Attorney General Jan Graham ran an aggressive public relations campaign urging that the settlement be spent on health issues. As a result, the governor and legislature recently voted to strip the attorney general’s office of its power over civil lawsuits and settlements.⁶¹

Bob Ward of the Public Policy Institute of New York State observes that the two issues generally considered most important to voters, education and health care, are big-ticket items that politicians think can best be addressed by higher spending. Thus, proposals to expend money in these areas abound. In addition to Rudolph Giuliani’s "tobacco bonds," Washington State’s legislature is going along with Governor Gary Locke’s proposal to use most of the state’s tobacco-settlement funds to expand health care for low-income children and families and for smoking prevention. He claims that Washington cannot give any of this money back to taxpayers because otherwise "the state would be forced to choose between funding education -- the state’s highest priority -- and preserving and improving state health programs."⁶² The state Senate has already voted in favor of Locke’s measures, to the delight of groups like the Washington Alliance on Tobacco Control and Children’s Health (WATCH), the Children’s Alliance, and lobbyists for the Washington State Association of Counties.⁶³ Nevada Governor Kenny Guinn, "to a standing ovation by legislators," proposed using the state’s tobacco money to create a scholarship program for Nevada students, an action he termed "truly heroic."⁶⁴ Yet one is forced to wonder whether Governor Guinn is being truly heroic or is simply motivated by more villainous calculations -- state agencies actively solicit suggestions for programs using settlement money.⁶⁵

The education programs sponsored by Governor Guinn of Nevada and a similar $8 billion program proposed by Governor John Engler of Michigan worry the public health interests that originally pushed for tobacco litigation. As a lobbyist for the American Lung Association commented, "we face an uphill battle in every state."⁶⁶ For example, the North Dakota Senate has approved a plan that would allocate nearly half the state’s tobacco money for a statewide water control project.⁶⁷ While this large undertaking may or may not be necessary to prevent flooding, it would probably not be as palatable were it not for the huge tobacco windfall. As one North Dakota legislator commented, "I think the prospect of tobacco money coming in is part and parcel for their support on this bill."⁶⁸ In tobacco-dependent states such as Kentucky, there are plans to help tobacco farmers with alternative crops to help offset the loss of income from reduced tobacco cultivation.⁶⁹ Los Angeles Mayor Richard Riordan has even proposed spending the city’s $300 million share on altering sidewalks to make them more accessible to the disabled.⁷⁰

A number of states hope to take the politically popular step of using tobacco money to balance the budget or pay off debt. New York, Rhode Island, and Louisiana have unveiled such plans. The most imaginative scheme comes from Louisiana, which would sell the state’s share of the tobacco deal like a winning lottery ticket, then use the money to eliminate state debt, increase teacher pay, and expand health programs.⁷¹ Proposals to use tobacco funds to reduce debt offer indirect taxpayer relief by reducing a state’s interest payments. Yet the Louisiana plan shows that even the fiscally responsible step of paying off the debt can take a back seat to increased spending on health and education. Additionally, paying down the existing debt will be a bad deal for taxpayers if it is used to justify or enable renewed borrowing.

Amidst the many proposals for increased spending, there are proposals for tax cuts in a few states. State Senator Pete Knight of California has proposed creation of a trust fund that would return the state’s $800 million per-year settlement money to California taxpayers, which his office estimates would equal $130 annually for middle-income families.⁷² In Missouri, voters will most likely have the opportunity to decide whether tobacco money should be refunded to the people or spent at the discretion of the legislature.⁷³ Colorado, which has a Taxpayer Bill of Rights (TABOR) that limits state revenue, is currently debating whether or not settlement funds should be considered "damage" awards. If tobacco money is counted as damage awards, it will not have to be refunded to taxpayers under TABOR.⁷⁴ Governor Owens and many other Colorado politicians support using the money to expand health and education programs, thereby opposing tax rebates provided for in the state constitution.⁷⁵ A bill before the Colorado Senate would allow the people (as in Missouri) to decide the fate of the tobacco funds.⁷⁶

With a few notable exceptions, state legislators seem to share the same philosophy as the attorneys general who were "more in agreement about money" than about specific goals for spending it.⁷⁷ The prospect of controlling billions of dollars in extra revenue is apparently a narcotic to politicians hoping to feed their habit of kowtowing to special interests. Indeed, the targeted recipients of tobacco proposal grants are often the same "public health" groups that are able to generate the most legislative pressure. While self-appointed spokesmen for "children," "education," and "families," drum up support for their pet projects, the taxpayers (who were supposed to be reimbursed for the so-called "costs" of treating smoking) have been all but forgotten. Even worse, the rush to fund new programs with tobacco money could actually increase the burden on taxpayers, who will be forced to underwrite programs that survive long after the settlement dollars are spent.

A. Rebate the Settlement to Taxpayers

Since the states brought tobacco litigation in the name of the taxpayer, the taxpayers should be directly reimbursed with settlement funds. It is not as if the states can argue that they are strapped for revenue; in fact, many states currently enjoy large budget surpluses without a single prospective settlement dollar in their coffers. Part of the reason for these surpluses, as U.S. Census data shows, is that from 1994-96 state and local governments increased tax collections by $87 per person above what was needed to keep pace with inflation.⁷⁸ States, municipalities, and school districts collected an average of $2,597 in total taxes for every resident in 1996 -- an 8.1 percent increase from two years earlier, in spite of the fact that inflation grew at only 4.5 percent.⁷⁹ Two of the states that initiated tobacco litigation, Mississippi and Minnesota, increased tax collections by over 14 percent during the same 1994-96 time frame.⁸⁰ This data reinforces the argument of critics who contended that the tobacco litigation was really a fishing expedition to catch money for expanding government.

B. Let the Voters Decide

If legislators are unwilling to rebate the settlement to taxpayers (and thus pass up the opportunity to control billions in discretionary spending) they should at least have the courage to put the issue before the voters. While health and education programs are considered to be popular, voters in numerous states have rejected increased spending in these areas, as Colorado citizens reaffirmed in 1998. At least two-dozen states allow legislatures to refer statutes to voters, and all but one -- Alabama -- would permit a constitutional provision achieving the same effect.

C. Pay Down State Debt

Using tobacco settlement funds to pay off state debt, so long as it is not used as a cover for more borrowing, is another alternative that demonstrates fiscal responsibility. The interest savings should then be passed on to taxpayers via rebates or across-the-board rate reductions.

Most importantly, citizens need to be active in the debate over the fate of tobacco settlement funds. Many of the politicians proposing increased spending are merely responding to the outdated mentality that only government can solve problems -- and then, only by expending large amounts of taxpayer dollars. This fiction is perpetuated by influential education and public health lobbies that are framing the debate over the tobacco settlement in terms of "children" and "families." The message that proponents of tobacco litigation are sending through their actions, however, is that the end justifies the means. Therefore, it does not matter if the states sued on behalf of taxpayers to cover the cost of treating smokers, because politicians and allied special interests plan to "invest" the money in projects they have deemed necessary. While individuals may not be able to stop trial lawyers from getting fabulously rich and the law being bent, at the very least they should have input on where these funds go. As long as the myth prevails that higher government spending is the panacea for society’s problems, government will continue to be the plaintiff in revenue-seeking lawsuits.

Opponents of the McCain tobacco tax bill warned that the legislation was really about funding big government.⁸¹ The measure failed largely because of public opposition to such a huge tax increase and massive federal power grab. Unable to extract monetary "damages" through Congress, revenue-hungry states altered their laws as attorneys general targeted Big Tobacco, which saw no choice but to settle for more than $200 billion over 25 years. While the payments have yet to begin, proposals for spending the windfall cover everything from education to improving sidewalks, a nightmare scenario which critics of the suit predicted. As one Wisconsin legislator said, "The last thing I want to see is us using Big Tobacco’s money to fund Big Government."⁸²

Yet judging by current proposals, tobacco settlement funds will indeed support the growth of government programs. Many legislators are reflecting the thinking of a Minnesota lawmaker who stated, "If we rebate it [tobacco settlement funds] to individuals, that is exactly what the companies want . . . They would declare victory and walk away."⁸³ Crusaders seeking increased funding for their programs betray their inflexible orthodoxy when they denounce the settlement as insufficient. The tobacco industry cannot afford many more of these "victories" -- aside from paying out the largest settlement in history, the tobacco deal severely restricted marketing and mandated that the companies pay for commercials denouncing their own product.

The practice of a mass tort involving the states was flawed from the beginning. Attorneys general motivated by political considerations filed the suits, then in many instances appointed private attorneys (many of whom had contributed to their political campaigns) as counsel.⁸⁴ These lawyers will rake in over $10 billion in fees, a significant portion of which will be plowed back into electing politicians and judges sympathetic to further industry-wide litigation. An important result could be the continued shift of decision-making authority away from elected legislatures toward unaccountable lawyers and judges. As Peter Huber writes in his seminal work Liability: The Legal Revolution and its Consequences: "Matters of public policy, once considered to be so broad-ranging that only the political branches of government could address them, are now routinely squeezed into the mold of a lawsuit and adjudicated like two-car collisions at an intersection."⁸⁵

The tobacco settlement was supposed to benefit the taxpayer. Yet so far it has only benefited trial lawyers, special interests poised to receive increased funding, and the politicians who get to distribute the loot. All the taxpayers stand to gain, if the current trend continues, are more expensive government programs and new tobacco-nourished bureaucracies.

About the Author

Mark Schmidt is Director of Programs for NTUF.