At long last, the empire is striking back. The tobacco companies, which for months had acted like docile children in hopes that Congress would play nice with them and approve their June 20 settlement with states and plaintiffs’ lawyers, came to their senses last week.
At the National Press Club on Wednesday, Steven F. Goldstone, the chairman of RJR Nabisco Holdings, Corp., said his company rejected legislation passed the week before by Sen. John McCain’s Commerce Committee. The three other big tobacco companies quickly agreed.
Goldstone said he couldn’t work with Congress. No kidding. The McCain bill, which passed the committee 19-1, would provide a flood of cash for Washington to spend — the single largest transfer ever from the private sector to the public. In all, the bill would cost between $ 500 billion and $ 600 billion over 25 years, up from $ 369 billion for the earlier settlement. “The money,” as the New York Times delicately put it, “would go into a Government trust fund. The legislation does not specify how the money would be spent.” Politicians of both parties are busy thinking up ways. For starters, in his new budget, President Clinton has already said he’ll use $ 65 billion of the tobacco funds to fix school roofs and hire teachers.
Much of the money would come from taxes. According to McCain, the bill would raise the tax on a pack of cigarettes by $ 1.10 over five years, but Wall Street analysts figure the price of a pack would rise by twice that or more, as the companies pass on to consumers new punitive costs, like annual assessments in the first six years totaling $ 125 billion.
Morgan Stanley’s David Adelman, for example, told clients that the bill would “result in a retail price increase of approximately $ 2.55 to $ 4.50 (vs. the current average retail price of $ 1.95).” And this tax increase would be borne disproportionately by already overtaxed blue-collar Americans – – although some would avoid it by resorting to an inevitable black market. (A trailer truck carries 695,000 packs. If the seller can duck taxes, his profit on the cigarettes in one truck can range as high as $ 1.8 million.)
Households that make under $ 50,000 account for three-fourths of all spending on cigarettes, according to the federal Consumer Expenditure Survey for 1995. A Roper Center poll for CBS News in September found that, while 24 percent of all Americans smoke, the figure is 35 percent in families making less than $ 15,000 a year, 27 percent in families between $ 15,000 and $ 30, 000, and just 15 percent in families over $ 75,000. Smokers tend to be white (25 percent of whites smoke) more than black (21 percent) or Hispanic (18 percent) and to live in the South and Midwest. In other words, McCain and his 10 Republican colleagues on the Commerce Committee want to sock Reagan- Democrats with a stiff tax bill — an extra $ 1,000 or so per smoking household, which is more than such families pay in income taxes.
Understand that careful analysis by Harvard’s Kip Viscusi and other scholars has found that, already, “smokers save society 32 cents per pack,” because they die earlier and don’t incur Social Security costs. Taxes, on average, provide another 53 cents. So, someone smoking a pack a day already contributes about $ 310 a year to the general welfare.
The McCain bill also removes the original settlement’s protections against future lawsuits, which were the reason the tobacco companies agreed to negotiate in the first place. And the bill bans animal figures in advertising (that’s the dromedary in the desert as well as Joe Camel), stifles exports (cigarettes would be prohibited from duty-free airport shops, among other things), gives the Food and Drug Administration the power to ban cigarettes outright, and boosts the “look-back” penalties to $ 3.5 billion a year if young people don’t cut down on smoking enough to satisfy the government — which, of course, they won’t.
Far more likely, smoking among the young will rise, as it becomes more than ever a safe, cool way to rebel against dithering old folks. Certainly, ad bans don’t deter teenagers. The last time I looked, advertising marijuana was illegal, but pot use has been rising. In Fear of Persuasion, Jack Calfee of the American Enterprise Institute, perhaps the leading expert on the subject, writes that “a recent analysis of data for 22 developed nations during the years 1964-1990” found that cigarette consumption dropped more rapidly in countries that did not impose ad bans than in those that did. “A statistical analysis, taking into account standard economic variables such as price and income, revealed that ad bans were in fact weakly associated with higher not lower consumption.”
If the Commerce bill seems onerous, it promises to be just the beginning Both David Kessler, the former FDA commissioner, and C. Everett Koop, the former surgeon general, called it too weak, as did Rep. Dick Gephardt (D-Mo.) and Sen. Ted Kennedy (D-Mass.). Even Republicans were ready to toughen it.
After Goldstone’s speech, Clinton repeated that his aim is to put the tobacco companies “out of the business of selling cigarettes to teenagers” McCain said, “We just want to put them out of the business of marketing to kids.” The rhetoric behind the tax is to make smoking more expensive and so deter the young. But, as Goldstone points out, only 2 percent of cigarette sales are to smokers who are underage. Why penalize the other 98 percent?
There are two obvious and unspoken reasons: First, the politicians (and their plaintiff-lawyer cohorts) want the money. Second, the health police — led by the priggish Kessler and Koop and the well-financed anti-smoking groups — simply hate smokers. They want these vermin exterminated. As Koop put it, “From my point of view, anything that stops smoking is good.” Clinton himself has said, “This is about changing the behavior of the United States.” Or, as Jacob Sullum writes in his excellent new book, For Your Own Good, ” The crusade for a smoke-free society . . is aimed at the behavior of individuals, not at the behavior of corporations.”
It is precisely this crusade, fueled by a political hysteria reminiscent of the tulip craze in Holland or the witch hunts in New England, that is so frightening. Senators like McCain seem to have lost their senses. Speaker Newt Gingrich says he will stay to the “left” of the administration on this issue. In the Commerce Committee, senators with strong, principled records like Spencer Abraham (R-Mich.) and Sam Brownback (R-Kan.) voted in favor of the bill.
In fact, the legislation is a pure embodiment of everything conservatives are supposed to abhor: sharply higher taxes, a massive new bureaucracy (17 new federal boards to administer the law), increased power to intrusive, do- gooder agencies like the FDA and the Department of Health and Human Services, the collection of vast sums to be spent by the federal government in unspecified ways, restrictions on commercial speech and the freedom of individuals to make their own choices, and the enshrining of the doctrine that people aren’t responsible for their own actions, that they smoke because evil corporations make them do it. As Sullum writes, “According to this model, smoking is something that happens to people, not something that people do.”
In fact, as a behavior, smoking is a rational choice made by people who are fully aware of the consequences, just as a motorcyclist knows he is more likely to die in an accident than the driver of a Ford Explorer. ” Motorcycling,” says the Economist, “is about 16 times more dangerous than driving a car; but a motorcyclist will tell you that the pleasure of wind in the hair and a powerful engine is worth the risk.” That is a decision for the motorcyclist alone to make. And smoking, unlike driving or drinking (or doing both at the same time), is a behavior that does not hurt others — despite the fevered claims of anti-cigarette enthusiasts about secondary smoke. An article in Investor’s Business Daily last week cited studies showing that the risks of breast cancer rise by 50 percent for women who have had an abortion, but the risks of lung cancer rise by only 19 percent for those who inhale passive smoke. A rule of thumb among epidemiologists is that any such increase of less than 100 percent is statistically insignificant.
Smokers choose what they see as pleasure — relaxation, increased concentration, solace — in exchange for the risk of dying younger than the longevity tables would normally allow. Kip Viscusi, in his book Smoking: Making the Risky Decision, shows that not only do smokers recognize the risks, they think their chances of dying are worse than they really are. For instance, the lifetime risk of getting lung cancer through smoking, says Viscusi, is roughly one in 10, but smokers see it as 3.7 in 10. Children, having had the anti-smoking story drummed into them from an early age, believe the risks are even higher, Viscusi found. “Most smokers (two-thirds or more) do not die of smoking-related disease,” says the Economist. ” They gamble and win.”
Koop himself has said that smoking “is a voluntary act: One does not have to smoke if one does not want to.” And it’s true that, while the average age of people starting to smoke daily is 17.6, they don’t have to keep smoking the rest of their lives. In fact, a survey by the Centers for Disease Control found that roughly the same number of Americans are former smokers as are current smokers. A questionnaire at my 25th college reunion discovered that fewer than 5 percent of my classmates are smokers, but as students, I remember at least half were. In other words, 90 percent of the smokers quit before their mid-forties.
Still, it is fair to argue that young people are especially vulnerable to cigarettes and should be discouraged from smoking. But there are far more efficient ways to accomplish that goal than to impose hundreds of billions of dollars in taxes and other extra costs on adults who smoke legally. For example, why not give out $ 100 fines (like parking tickets) to children — or, better yet, their parents — if they are caught smoking or buying cigarettes? Why not suspend a teenager’s driver’s license for a year? These are simple steps that can be taken by state and local governments — but they deprive the federal government of all that tax money and of the chance to practice social experiments on a grand scale.
Who can possibly doubt that, if Congress and the president are successful, alcohol and fatty foods will be next? The arguments will be precisely the same — only perhaps more forceful. Roughly 25 percent more years of life before age 65 are lost each year to alcohol than to tobacco, and overeating seems to be a tougher habit to kick than smoking.
But the battle at hand is over cigarettes, and now, at last, it is a real battle. The tobacco companies made a mistake in accepting the original settlement, but they can be forgiven their desire to limit an open-ended liability. The attempt to please investors largely failed. The price of a share in Philip Morris Inc., the largest cigarette-maker, has dropped about 10 percent since then, while the Dow Jones Industrial Average has risen 15 percent.
There was much for a cartel-loving tobacco company to like in the original deal: It essentially froze market shares in place and meant that new competition wouldn’t be a problem. And the increased role of the FDA could actually be helpful, seeming to award a seal of approval to a product that had become suspect. Also, the tobacco companies realized that, while they could beat individual plaintiffs fair and square in court (since juries have consistently ruled that smokers assume personal risk), they couldn’t defeat states that passed laws, as Florida did in 1994, that stripped away defenses, making it inevitable that attorneys general would prevail in suits claiming Medicaid damages. These laws are truly outrageous, and in any other context conservatives would be screaming bloody murder. Typical is a bill introduced in Vermont, which states baldly: “Principles of common law and equity regarding assignment, lien, subrogation, comparative negligence, assumption of risk and other affirmative defenses normally available to a defendant are abrogated to ensure full recovery.” In other words, tobacco companies are not allowed to defend themselves.
So, to save their companies, the tobacco firms felt they had to settle. But they made two horrendous blunders. First, they neglected to invite congressional representatives to the settlement negotiations — a serious affront to a bunch of proud old men. Second, at the urging of their high- priced advisers, the companies launched a big advertising campaign urging the adoption of the settlement by Congress. A neutral observer, having watched the tobacco companies dissemble and obfuscate for decades, might wonder whether such a settlement, fervently pushed by tobacco, would be in the public interest.
Hence, the McCain bill — and Goldstone’s belated response. Now, what can Congress do without the companies’ consent? Not very much. Politicians are left with tightened FDA regulation, marketing restrictions that fall short of violating the First Amendment (which could benefit the companies by cutting their costs and preventing competition), and, of course, higher taxes.
The tobacco industry wants Americans to think of the McCain bill as a tax bill — which is what it is. The strategy still might fail, but it is pure pleasure to see the cigarette-makers fighting back at last. The tobacco companies are hardly heroes, but what a great cast of villains they have arrayed against them: unscrupulous lawyers; sanctimonious health cops; vapid, whiny Democrats; and, worst of all, preening, unprincipled Republicans. Go get ’em, guys.
James K. Glassman is a fellow at the American Enterprise Institute, columnist for the Washington Post, and host of the PBS series “TechnoPolitics.
