The Wages of Sin - What to Do with the Tobacco Settlement

Posted on February 01, 2000 | Type: Policy Report | Author: Robert J. Franciosi
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EXECUTIVE SUMMARY

In 1998 the attorneys general of 46 states, the District of Columbia and various territories signed an unprecedented settlement agreement with the five major tobacco companies. The terms of the settlement put curbs on the companies' ability to market, advertise, sponsor, lobby and engage in trade association activities.  It also forces cigarette makers to pay a record financial recovery, including paying an estimated $196 billion to the states over the first 25 years of the settlement.  Arizona's share is an estimate $100 million per year.

The settlement creates a disturbing precedent. It puts into place a regulatory regime governed by a public/private organization, and creates the conditions for a government-protected cartel in exchange for a share of the profits.   Public officials' moral dudgeon and quest for money has led them to undermine the rule of law.  This creates a model for future would-be regulators or revenue seekers to prey on other sectors of the economy that are politically unpopular.
 
The settlement is essentially regressive in nature.  Smoking is more common among low-income groups.  The majority of the plans for spending the money call for spending the money on behalf of the disadvantaged.  However most of these programs, some of dubious value, will only benefit the specific groups who are both eligible and desire the service that is offered.  Those with other needs are out of luck.  Instead of a regressive transfer from the poor to government agencies Arizona should use the money to pay for a refundable tax credit.  It will give families the ability to spend the money to best suit their needs; and it is much more fair.

Read The Wages of Sin here.

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