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Taxpayers are Casualties in "Tobacco Wars"by
Sayeh S. Daee Sep 5, 2001 Some 7 years after state Attorneys General began their war against “big tobacco,” victory has finally been declared. Unfortunately, the real winner is big government, and the real loser is the overburdened taxpayer.
States justified their 1994 lawsuit against big tobacco by arguing that caring for poor smokers on Medicaid placed an undue burden on state budgets. Echoing the sentiments of his fellow Attorneys General (AGs), Mississippi’s Mike Moore proclaimed at the time that the states were on a crusade to force tobacco companies to pay what they “rightfully owe to Mississippi taxpayers.” Health care advocates joined the fray on behalf of a second cause soon embraced by the AGs – curbing teen smoking and tobacco usage overall. So far both these intentions have been frustrated by a habit most lawmakers have found much harder to kick than cigarettes – squandering money on pet projects.
A recent U.S. General Accounting Office report found that of the settlement amount collected so far, just 3.6 percent has been delivered to Americans in the form of tax relief. Only two states, Connecticut and Illinois, have designated a portion of their payment towards tax reductions. Thirty-five states allocated 41.3 percent to health programs, but a large portion of this is not related to anti-smoking efforts or even to fighting certain illnesses that have been linked to tobacco use. Interestingly, 46.2 percent of the settlement money has been allocated toward non-health related areas of state budgets, such as education, infrastructure, and other general purposes. Of that 46.2 percent, 20.2 percent is left on the books for future plans (twenty states have not allocated all of the money yet).
Anti-smoking forces should have seen the demise of their own cause long ago. Since the settlement money that states receive from tobacco companies is directly linked to tobacco sales, states do not have an incentive to reduce tobacco use. If tobacco consumption decreases over the next several years, the settlement money states receive will dwindle – and with it the ability to shower special interests with lavish “gifts.”
But taxpayers are much bigger victims of the states’ broken promises. Not only are they being denied the tax cuts they deserve (after paying $40 million to finance the lawsuit), they may also be on the hook for tax increases.
Economists use “Say’s Law” to explain that supply can create its own demand – the mere existence of a good or service creates consumers willing to use it. But Say’s Law also rules government budgets. Every new program creates a small but entrenched constituency that has a greater financial stake in holding its ground than the larger but less organized taxpaying public has in taking back the territory it rightfully deserves.
Social services programs, with their open-ended goals and their self-replenishing pool of beneficiaries, could mean bigger bills for many generations of taxpayers to come. But even one-time “capital improvement” programs, like South Carolina’s wastewater development project or North Dakota’s flood control plan, could carry maintenance costs that will continue long after construction (and settlement disbursement) has ceased. The federal government built the National Helium Reserve in the Depression era to stockpile the gas for an outbreak of blimp warfare, but debt service and operating expenses kept adding to the tab for 60 years before the operation recently began shutting down.
If we have learned a lesson from the tobacco lawsuit, it is that many politicians will do anything “in the name of justice” as long as the pot of money is fat enough and full enough. The least that can be done today is to ladle the last few dollars left in that pot to taxpayers, in the form of state tax reductions.
But Americans should expect more than this in the future. The best way to keep “settlement funds” out of the public sector’s greedy grasp is to ensure that the money never leaves the private sector in the first place. States should refrain from “legislation through litigation” schemes that enrich lawyers and special interests but impoverish businesses and taxpayers. Our economy – not to mention our political system – would be better off as a result.
Sally Sayeh Daee is an Associate Policy Analyst with the 335,000-member National Taxpayers Union, a citizen group founded in 1969 to work for lower taxes and less wasteful spending at all levels of government. She is a student at George Mason University focusing on Economics and Public Policy. Peter J. Sepp is NTU’s Vice President for Communications. |
