Taxing the Poor

Commentary by John C Goodman

The Democratic Party used to have a legitimate claim to represent the interests of the poor. No longer.

Even before President Clinton declared war on tobacco, smokers were already paying their own way. Economic studies showed that folks who smoke, chew and puff - heavily congregated near the bottom rungs of the economic ladder - paid more in tobacco taxes than any extra costs they created for government health programs. The Congressional Research Service said that both federal and state governments made a "profit" on smokers.

Then came the state tobacco lawsuits, egged on by Democratic politicians and pursued by trial lawyers who contribute heavily to the Democratic Party. The result: billions of dollars of new revenue, which will come mainly out of the pockets of people who can least afford it. Now comes the federal government's suit against big tobacco, threatening billions of additional costs for the poor.

The real issue is taxation by litigation. But, of course, no one is admitting that. In its suit, the Justice Department claims that the tobacco industry made false and misleading statements about whether smoking causes disease, lied about cigarette's addictive qualities, promoted biased research to defend itself in court, failed to develop less hazardous products and lied about marketing to an illegal market, children.

For their part, tobacco companies argue that the government has known about tobacco's health risks for a long time, as evidenced by their requirement since 1966 that cigarette packages contain warning labels. The companies also note the government is the largest profiteer of tobacco sales - raking in $6 billion each year. In fact, the government makes nearly twice as much on a pack of cigarettes as the company that manufacturers it. Furthermore, while denouncing cigarette makers the government is subsidizing tobacco by making tobacco farming more profitable.

Put aside these legal arguments, and keep your eye on the money. This year alone, the administration has proposed almost $300 billion in new government spending. How are they going to pay for it? They can't. When President Clinton tried to get Congress to pass a tax on tobacco, Congress rightfully balked.

Now, the administration is asking Congress to dedicate $20 million to go after big tobacco's money in the federal courts. The industry, which just last year reached a $206 billion, 25-year settlement with 46 states, might have little choice but make a similar settlement with the Federal government.

The Justice Department would like to be seen as white knights coming to slay the "merchants of death." The truth however, is they see an industry with deep pockets that is a tempting easy target for this type of unprecedented litigation. Yet it will be "Joe Average" not Joe Camel that suffers the financial brunt of any court decision or settlement.

For smokers, according to Merrill Lynch analyst Emanuel Goldman, a settlement could act as a hidden tax, tacking on another 50 to 60 cents per pack. This tax will hit those in the middle to lower-income brackets the most. In fact, Congress' Joint Tax Committee found that 53% of the money taken in the states' tobacco suit is coming from people making under $30,000 per year - and 97% from those earning less than $75,000.

Instead of complaining about Republican tax cuts for the rich, Democrats in Congress can do the poor a big favor: Just say no to this irresponsible lawsuit.