It's the Money, Not the Principle

Commentary by Pete du Pont

Antismoking forces are after the tobacco companies because they want to stop people from smoking and put the companies out of business.

State governments, particularly the attorneys general, are after the tobacco companies too, but they want the money. They want the revenue not only from the $246 billion settlement the tobacco companies have made with 46 states, but also from the more than $7.5 billion that states collect in cigarette excise taxes every year. Both those figures stand to be reduced if smokers were to quit in large enough numbers, and so the states don't want the anti-smoking crusade to be too successful.

Thus, after a Florida court held the five largest cigarette makers liable for $12.7 million in a class action suit, with the prospect of possible punitive damages running into the billions (or hundreds of billions), we saw some interesting shifting of alliances.

Suddenly, the trial lawyers joined the tobacco companies in looking with dismay on any multibillion-dollar punitive damage judgment. If the tobacco companies wanted to appeal such a judgment, they would have to post a bond to cover the full amount of potential damages plus interest. Even with the resources they have, the companies would have difficulty coming up with the collateral to cover hundreds of billions. If the tobacco companies took the other option and filed for bankruptcy, that likely would cut off the settlement payments to the states - and cut off the share of the settlement payments the trial lawyers are getting. So the state attorneys general hired the bankruptcy lawyers to block that option, and the tobacco companies and the trial lawyers approached the Florida Legislature to ask for a ceiling on the amount of bond required.

Since the original judgment was handed down (the punitive judgment phase of the trial is still going on), the Florida Legislature set the ceiling for a bond at $100 million. However, the Florida antismoking forces denounced talk of bankruptcy as simply a scare tactic by the other side. Florida law, they say, already prohibits punitive damages that would bankrupt a company. (But does it also apply to requiring an appeal bond that would bankrupt a company? That's not clear.)

What is fascinating about these maneuverings is that they make it clearer than ever that, whatever the goal of the antismoking forces, and whether you like or loathe the tobacco companies, with state governments the crusade against Big Tobacco has little to do with whether smoking is good or bad and everything to do with money.

Now that is not exactly a news flash. The states have been spending the tobacco settlement money on all sorts of things - but only occasionally on health care, the cost of which allegedly was the reason for suing. But as the Florida drama is being played out, we have new scholarly research from Kip Viscusi, a Harvard Law School economist, that not only finds that every state (and the federal government, for that matter) actually gains a net dollar saving on health care for smokers, but also quantifies the amount state by state. The additional spending on health care associated with smoking is more than offset by reduced nursing home and pension costs because smokers die sooner.

In New York, the state with the highest medical care costs associated with smoking (8 cents per pack), Viscusi found that the state saved 12 cents per pack in reduced nursing home and pension costs. The average saving nationwide was 8 cents per pack.

Admittedly, that is a ghoulish approach. Mississippi Attorney General Mike Moore, one of the originators of the idea of suing to recover health care costs, wrote in an earlier memo that taking into consideration any saving to the states from early deaths "is offensive to human decency, an affront to justice, uncharacteristic of civilized society, and unquestionably contrary to public policy."

But, as Viscusi wrote in a study in the Journal of Law and Economics, "The controversial exercise of tallying the financial consequences of smoking was initiated by the states, not the defendants." Thus Viscusi argued, it only makes sense to consider the net economic costs to the states.

So the states have found a new source of revenue, the proceeds of tobacco litigation, and they are fighting to keep it going. It all brings to mind the words of the humorist Kin Hubbard, "When a fellow says it hain't the money but the principle o' the thing, it's th' money."

 

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The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.