This Bad Bargain Must Go Up in Smoke

Forbes ^ | March 14, 2005 | Steve Forbes, Editor-In-Chief

[SheLion]

This Bad Bargain Must Go Up in Smoke

Recently a federal appeals court finally brought some sanity to the issue of the U.S. government's being able to sue tobacco companies for allegedly burying the truth about cigarettes being harmful. Forgotten in all of this, of course, is the fact that cigarette packs have carried health-warning labels on them for 40 years. The judges ruled that the federal government cannot force the tobacco companies to hand over $280 billion of profits they earned while allegedly misleading us about their products' impact on people's health. The suit was born of Washington's envy over the $206 billion settlement 46 states had wrung out of the big tobacco companies several years ago. Uncle Sam wanted some tobacco loot, too.

While the courts are at it, they should take a similar knife to the original settlement in the case of the states versus the tobacco companies. It is unconstitutional; it makes a travesty of the government's needing to win legislative approval before being able to exact a tax.

That settlement is one of the most monopolistic, anti-property-rights, anticompetitive acts of modern times. Most state legislatures--not to mention the U.S. Congress--were not willing to raise cigarette taxes substantially and directly. But they wanted big money from the tobacco industry, so they cooked up an extraconstitutional scheme to get it. To settle various state lawsuits, the big tobacco companies agreed to cough up $206 billion over 25 years. To get the dough, the tobacco companies raised cigarette prices substantially. Thus, the taxes that legislators were afraid to levy directly were exacted in the form of more expensive smokes. In return, the states, in effect, were protecting the big tobacco companies from competition.

It's no surprise that the major tobacco companies, thus protected, raised prices not only to service the settlement but also to fatten their bottom lines. The deal prevented would-be cutthroat competitors from stealing market share by selling cheap cigarettes.

Now this cozy arrangement may come unstuck. A New York State court decision in early 2004 allowed a plaintiff to pursue an antitrust lawsuit against the settlement (see FORBES GLOBAL, Feb. 28). The original settlement inadvertently contained a loophole; it allowed cigarette discounters to get refunds of the special fee per pack of cigarettes that goes toward financing the settlement from states in which they don't sell their wares. States have been passing laws to close this loophole, but in October a federal court said no can do. After all, why should a company that didn't even exist at the time of the settlement be forced to pony up money for bad behavior in which it had played no part?

The whole deal is like tax collecting in olden times. Governments would put the job of collecting taxes up for bid. Whoever won the contract could collect whatever they could from the peasants, as long as the so-called tax farmers remitted a certain share of it to the crown. That tobacco settlement smacks of tax farming: Companies collect the money and remit it to the states.

[SheLion]

Keep in mind:  The MSA is being paid solely by the taxes smoker's pay on cigarettes. NOT Big Tobacco and NOT the government.  But the SMOKERS!

[SheLion]

[ClintonBeGone]

I've always been puzzled why a new tobacco company that enters the market has to pay for the sins of the past. Perhaps this is why Phillip Morris tried so hard to shut down Yessmoke.

[SheLion]

I've always been puzzled why a new tobacco company that enters the market has to pay for the sins of the past. Perhaps this is why Phillip Morris tried so hard to shut down Yessmoke.

There are a few tobacco company's that didn't go in with the Attorney Generals.  I forget what company's they are, but there are a few. It's not Phillip Morris that is trying to shut down the online cigarette sales (although I don't doubt that they are lobbying Congress for this), but actually, it is the state lawmakers that are pissed because the state isn't reaping that tax money when smoker's buy off of the net.

And Phillip Morris is one dirty deed!  They toot their horn about how everyone should quit smoking yet they still sell their cigarettes.  They talk out of both sides of their mouth.  I can't stand PM!

[Neoliberalnot]

I am reminded of the similarly unhealthy lifestyle of homosexuality. The parallels are striking, but how long will it be until the public figures out that the male homosexuals average lifespan is actually shorter than a smokers. Go figure.

[Enterprise]

Male homosexuals and smokers both have their lives shortened by contact with dirty butts.

[SheLion]

Both of you are way out of line here.  Just because you don't like smokers, how dare you equate us with the gay population!  I won't put up with it!

I am reminded of the similarly unhealthy lifestyle of homosexuality. The parallels are striking, but how long will it be until the public figures out that the male homosexuals average lifespan is actually shorter than a smokers. Go figure.

Gay peoples life span is to age 42.  Smokers can live well into their 90's and longer!

Male homosexuals and smokers both have their lives shortened by contact with dirty butts.

You disgust me.  I bet you have a "dirty butt" that I would find disgusting. ugh!

[SheLion]

Did you recently sign on just so you could bash and trash decent FReepers just because we choose to use a legal commodity???

Neoliberalnot
March 2, 2005

[Enterprise]

"I bet you have a "dirty butt" that I would find disgusting. ugh!"

Well maybe. I smoke Avanti cigars, and when I finish, you would probably think the butt is dirty and disgusting.

[SheLion]

No comment

[Gabz]

Now this cozy arrangement may come unstuck. A New York State court decision in early 2004 allowed a plaintiff to pursue an antitrust lawsuit against the settlement (see FORBES GLOBAL, Feb. 28). The original settlement inadvertently contained a loophole; it allowed cigarette discounters to get refunds of the special fee per pack of cigarettes that goes toward financing the settlement from states in which they don't sell their wares. States have been passing laws to close this loophole, but in October a federal court said no can do. After all, why should a company that didn't even exist at the time of the settlement be forced to pony up money for bad behavior in which it had played no part?

No wonder the cozy deal PM made with the Governor of Virginia last year went no where this year. PM agreed to not oppose the massive cigarette tax increase here last year, and the Gov was pushing legislation to close the "loophole."

[Enterprise]

"Just because you don't like smokers"

Unsubstantiated hyperbole.

[MileHi]

The thing that I don't get about the suits is that the states profit nearly as much as the tobacco companies. Shouldn't they have sued themselves?

[Gabz]

Actually the states profit more than the tobacco companies.

[SheLion]

Actually the states profit more than the tobacco companies.

[Gabz]

Something is not quite right with that chart. The MSA figure should be $4.50.

Regardless, well over half the cost of that cartion of cigarettes is comprised of taxes..........and that does not include the taxes on the wholesale and retail "profits" or the various taxes paid along the way that areincluded in the wholesalers costs.

[SheLion]

Something is not quite right with that chart. The MSA figure should be $4.50.

Hard to tell how old it is, too.

[SheLion]

Which one is it? I will change it.

[Gabz]

I wouldn't change anything.......it's a very good model of exactly what is going on with the price of cigarettes.

It shows EXACTLY which hands are in wallets.........

[Gabz]

You need to ping your list - so that others can see this excellent article.