Taxpayers to Pay Bill for War on Tobacco

By Goldreich, Samuel | The Washington Times (Washington, DC), June 21, 1998 | Go to article overview

Taxpayers to Pay Bill for War on Tobacco


Goldreich, Samuel, The Washington Times (Washington, DC)


****COMPANIES WILL RAISE PRICES AND TAKE TAX DEDUCTIONS ON LEGAL FEES.

Freedom from taxation became the smokers' rallying cry that helped kill anti-tobacco legislation in the Senate last week.

But as the tobacco war moves from Congress to the courts, all taxpayers will be forced to share the burden of industry legal fees - and smokers will pay ever higher prices.

Whether tobacco makers win, lose or settle their court cases, they will be able to write off their legal costs against their taxes.

"Settlements in lawsuits and jury awards are tax-deductible as standard business expenses," said Washington state Attorney General Christine Gregoire, next in line to take her tobacco case to court in September.

Tobacco makers already have raised cigarette prices five times in the past year to pay for settlements with four states and a group of flight attendants.

Now industry analysts expect further price increases as the tobacco companies try to resurrect part of the deal they struck last year with 40 state attorneys general to settle lawsuits nationwide. The deal would have required industry payments to states, private plaintiffs and the federal government of least $368.5 billion over the next 25 years and billions more thereafter.

"The industry agreed to pay $196 billion just to settle the state cases last June," said tobacco stock analyst David Adelman, with Morgan Stanley Dean Witter. "The question is whether [the state] component of the settlement is worth $196 billion."

If the industry agrees to deals nationwide similar to the $6.6 billion settlement won by Minnesota Attorney General Hubert H. Humphrey III, the price of cigarettes could double to $4 per pack without any new taxes.

Most legal experts don't expect the price to jump that high.

"Those first four cases were the best state attorney general cases," said anti-tobacco lawyer John Coale, who leads the legal team representing the largest private plaintiffs' group. "Now the industry is going back to the bunkers to litigate."

Tobacco companies have raised the retail price of cigarettes by about 15 cents per pack to pay for settlements with Mississippi, Florida, Texas, Minnesota and the flight attendants. Smokers likely will pay even more in coming months because tobacco companies have raised wholesale prices more than 20 percent.

At the same time, tobacco makers have taken charges against their income for the first payments due Minnesota after that case was settled last month.

That move means the net cost of the deal to market leader Philip Morris this year was reduced from $806 million to $492 million, and RJR whittled its share from $312 million to $199.

Overall, tobacco makers could write off almost $14 billion of the $36 billion cost of settling with the four states and the flight attendants.

The defeated bill drafted by Sen. John McCain, Arizona Republican, would have raised $500 billion to $800 billion in taxes over the next 25 years through a $1.10 boost in cigarette excise taxes. But the tax treatment of the tobacco industry's settlement with the states was left unresolved, with an expectation that it would be worked out in conference with the House.

Tobacco critics plan to broadcast the message that the public will pay to bail out the industry whether or not House tries to pick up where the Senate left off on anti-smoking legislation.

"The taxpayers pick up the bill in both cases," said Paul Billings, deputy director of government relations for the American Lung Association.

GOP leaders last week said they would support a narrower tobacco bill that would create an anti-smoking campaign targeted at teenagers and paid for by revoking industry tax deductions for advertising. …

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