NCPA - National Center for Policy Analysis

A Federal Anti-Tobacco Lawsuit Would Tax Consumers

June 10, 1999

The era of big government may be over, but the era of government regulation still thrives, thanks to an emerging trend of using the courts to impose controls where Congress fails to pass laws. President Clinton announced in his State of the Union Address in January 1999 the "Justice Department is preparing litigation to take the tobacco companies to court." This suit follows a previous joint suit by the states against these companies to recover the alleged smoking-related costs of Medicare.

Most legal experts doubt that the federal government has any legal basis for the Medicare suit. The Medicare statute says nothing about suing for recovery of Medicare costs. The government could sue to recover Medicare costs as a private insurer might under common law, but realistically, the expense of suing tobacco companies on behalf of individual Medicare beneficiaries is far too high.

Instead, the Justice Department discussed passing legislation to grant the federal government specific authority to recover from the cigarette companies and strip those companies of any legal defenses. Such legislation is unconstitutional on several grounds, say legal experts.

Furthermore, regulation through litigation translates into additional costs for the consumer--a "tax" of sorts. In considering the cigarette industry, the costs of the Medicare litigation, added to the states' settlement, drive the costs even higher.

  • The price of cigarettes could soar to $4 or $5 per pack, even though the cost of producing the pack is less than $1.
  • The price differences between Mexico and the US would be even more significant, stimulating a massive black market in cigarette sales.

Last year, Congress rejected a massive tax hike on cigarettes; but President Clinton says his Medicare lawsuit would impose "hundreds of billions" in additional costs on cigarettes.

Source: Peter J. Ferrara, "No Taxation Through Litigation," Policy Brief, Americans for Tax Reform, 1320 18th Street, N.W., Suite 200, Washington,. D.C. 20036, (202) 785-0266; and Robert Reich, "Regulation is Out, Litigation is In," USA Today, February 11, 1999.

 

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