Over the years, anti-smoking forces have tried to bury the
tobacco industry under liability claims, to ostracize it from
society and to strangle it with regulations.
But in a settlement hammered out with 40 state attorneys
general and lawyers for diseased smokers, the industry would be
allowed to continue earning generous profits for many years - even
as it is forced gradually to price and market itself out of
"The paradox here is that we have had to keep the industry
financially healthy in order to finance its own demise," explained
Iowa Attorney General Thomas Miller, a hard-liner among the
In effect, the proposed settlement would translate into a
75-cent per pack increase in the federal cigarette tax, which would
require each new generation of smokers to pay for the health
consequences of smoking by previous generations.
The gamble by government officials and public health advocates
is that this sharp rise in the price of cigarettes - along with
advertising curbs, a massive anti-smoking campaign and tighter
regulations over the content of cigarettes - gradually will reduce
smoking and its harmful effects on American health.
In deference to the political sensitivities of 50 million
American smokers, however, no official tax increase would appear
anywhere in the federal tax code. Instead, Congress will be asked
to give a legislative blessing to a $368 billion settlement of
liability claims, which the industry would pay over 25 years to a
government-administered compensation and education fund.
Anti-tobacco negotiators fully expect the companies to finance
most of the payments with an increase in the wholesale price of
cigarettes. In fact, to encourage them to do so, they will press
for special legislation that would protect the companies from
Longtime critics of the industry will take little moral
satisfaction from an arrangement that puts the settlement's
financial burden on smokers rather than on an industry that, in
their views, has engaged in 40 years of lies and deceit.
An Economic Quandary
But in recent months, the state attorneys general leading the
latest assault on the industry came to realize that the economics
of the tobacco industry made it impossible to simultaneously punish
the companies, wean America off its cigarette habit and generate
billions of dollars for victims and state governments.
Despite forceful declarations Friday that the industry would
suffer for its misdeeds, punishment in the end turned out to be the
least important goal and the most difficult to achieve.
"Financially, I don't know if there is any way to really punish
the tobacco companies short of legislating them out of business,"
said Arthur Schleifer, an economist at the Harvard Business School
who advised some of the attorneys general.
By outlawing the sale of cigarettes, the government could have
instantly vaporized the value of that portion of tobacco company
stock tied to U.S. cigarette sales - maybe $25 billion in valuation
at the time the talks shifted into high gear earlier this spring. …