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State Cigarette Mob Can't Kick the Habit
Reason ^ | March 29, 2006 | Jacob Sullum

Posted on 03/29/2006 1:30:18 PM PST by neverdem

Under the government-enforced cigarette cartel, every state is a tobacco state

Colorado Treasurer Mark Hillman calls the deal under which the top cigarette manufacturers pay the states billions of dollars a year "a protection racket." In truth, it's worse than that.

The so-called Master Settlement Agreement (MSA), which resolved state lawsuits against the largest tobacco companies, is not a classic extortion scheme in which a business pays to be left alone. Instead Philip Morris et al. are paying for protection against their competitors, and they are passing the cost on to their customers, the very people whose victimization by Big Tobacco supposedly justified the lawsuits in the first place.

A decade ago, states started suing cigarette makers, demanding compensation for the cost of treating smoking-related illnesses under Medicaid. They accused the tobacco companies of tricking people into smoking by denying its health hazards and keeping them hooked with carefully calibrated doses of nicotine.

In 1998, to avoid potentially ruinous liability, the industry's main players agreed to payments totaling more than $200 billion during the first 25 years of the deal. But there was a problem: If the participating companies raised their prices to cover the payments, what would stop existing or new cigarette makers that had not signed the MSA from underselling the big manufacturers and whittling away at their market share?

The answer was a government-sponsored cartel that forces nonparticipating companies to make payments into an escrow account based on their sales, ostensibly to cover their future liability. Under this arrangement (which has been challenged in federal court), cigarette makers that have been nothing but honest with the public pay a penalty so the sleazy, sneaky companies the states sued don't have to.

If that seems unfair, recall that the whole scheme is aimed at forcing those tricked and trapped (and relatively poor) smokers to bear the entire burden of the settlement payments. And then some: Cigarette prices rose by $1.10 a pack during the first two years of the MSA, more than twice the cost of the settlement payments.

Now the states and the big tobacco companies are engaged in an unseemly spat over this unseemly deal. In a bid that gained support this week from an arbitrator, the companies are trying to reduce their annual payments by some $1.2 billion, arguing that the states have not enforced the cartel with sufficient enthusiasm.

The MSA participants' collective market share fell from 99.6 percent in 1997, the year before the deal, to 92 percent in 2003. Even hobbled by the MSA's financial penalties, small manufacturers such as the Virginia-based S&M Brands, maker of Bailey's cigarettes, have managed to lure away smokers with lower prices.

In their defense, the states say they have done their best to destroy competition and hurt consumers. As The Wall Street Journal puts it, "they argue that they have taken the steps required in the settlement to create a level playing field" by passing and enforcing "the necessary laws to deny the upstart tobacco companies unfair advantages."

Unfair advantages? According to the states, the companies that signed the MSA were guilty of a massive fraud that caused millions of premature deaths and racked up billions of dollars in government-covered medical bills. Isn't being unburdened by settlement payments because you didn't participate in such a fraud a fair advantage?

Fairness, of course, has nothing to do with it. This is about money: a windfall that state attorneys general have been happy to take credit for and state legislators have been happy to spend.

Because the settlement payments are tied to cigarette sales, Mark Hillman notes, states are sending "a mixed message to citizens that 'We want you to stop smoking' because it's terrible for your health, but 'We need you to keep smoking' to pay for government programs." Nowadays the states rake in more money from smokers than the cigarette companies do. Big Government and Big Tobacco have not just joined forces; they've become synonymous.


© Copyright 2006 by Creators Syndicate Inc.


Jacob Sullum is a senior editor at Reason.


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; Editorial; Government; News/Current Events; Politics/Elections; US: District of Columbia
KEYWORDS: cartels; governmentmafia; govwatch; libertarians; pufflist; taxes

1 posted on 03/29/2006 1:30:19 PM PST by neverdem
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To: Gabz

MSA ping


2 posted on 03/29/2006 1:31:14 PM PST by neverdem (May you be in heaven a half hour before the devil knows that you're dead.)
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To: neverdem
No big deal to those with a socialist mentality.. and many many conservatives have a socialist mentality.. Little wonder being brain washed from their youth in the public school system.. Even many of those that think they don't, do..

The Social Security Sysyem is a socialist boondoggle.. pure and simple and few they be that will admit it.. and OWN the crime..

3 posted on 03/29/2006 1:40:33 PM PST by hosepipe (CAUTION: This propaganda is laced with hyperbole..)
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To: neverdem

This is a great article. I'm just so glad to see stuff like this get out to the larger public. It wouldn't have seen the light of day 10 years ago.


4 posted on 03/29/2006 1:54:16 PM PST by Sunshine Sister
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To: neverdem
Spot on.
The tobacco companies haven't spent one thin dime out of their own pockets to pay for the MSA. It's ALL, let me repeat that, ALL come from the smokers' pocket.

The states are so dependent on this "revenue" now that they can't do without it.

Don't smoke, smoke 'em if you got 'em, no - don't smoke, smoke 'em if you got 'em, no- wait- don't smoke.

Is it any wonder the smokers' can't get their act together. They are hit with opposing messages all day long.
(From the Bugs Bunny cartoon) Which way did he go? Which way did he go, George?

5 posted on 03/29/2006 2:00:05 PM PST by Just another Joe (Warning: FReeping can be addictive and helpful to your mental health)
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To: neverdem; Just another Joe; CSM; lockjaw02; Publius6961; elkfersupper; nopardons; metesky; Mears; ..

For later...........I'm out the door right now.


6 posted on 03/29/2006 2:13:22 PM PST by Gabz (Smokers are the beta version)
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To: neverdem
Instead Philip Morris et al. are paying for protection against their competitors, and they are passing the cost on to their customers, the very people whose victimization by Big Tobacco supposedly justified the lawsuits in the first place.

I have known this from the beginning, and arrange my life appropriately. I make sure all my cigarettes are from no-settlement sources, any way I can.

The big tobacco companies rolled over for the government criminals; No loss for them, they were happy to act as tax collectors and maintain their profits, and they will be rewarded accordingly.

Had they fought the government with the money they have spent anyway, I would have no problem with paying the increased costs, and I would have some respect for them.

Also, the reach of government may have been attenuated somewhat.
The way things turned out, every two horse town has license to violate the Constitution with impunity, financed and emboldened by "free" tax moneys from the very taxpayers that they are assaulting..

7 posted on 03/29/2006 2:14:34 PM PST by Publius6961 (Multiculturalism is the white flag of a dying country)
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To: Gabz; All

"Nowadays the states rake in more money from smokers than the cigarette companies do. Big Government and Big Tobacco have not just joined forces; they've become synonymous."

And no one even noticed while it was happening. Let's see...this will probably happen with Healthcare in the future; much sooner if a Hitlery-esque President is elected. It's starting to happen with food & regulating what we can eat and the labeling of foodstuffs, etc. Chocolate Chip Cookies and Twinkies could be heavily regulated and heavily taxed in the near future. The MADD crowd has been trying to make it happen with alcohol and have achieved a small victory as the increased revenues from DUI tickets in our towns and cities show.

And then there's the tagging of all of our hobby/farm animals, and the seizing of our privately owned property "for the common good."

Hear that? "Chip-chip-chip..." That's the chipping away of your rights to do what you want to do, versus the Government making a buck off of you when they think you're not looking. As if income and property taxes aren't bad enough!

I'll bring the pitchforks. Who's got the torches?


8 posted on 03/29/2006 2:45:09 PM PST by Diana in Wisconsin (Save The Earth. It's The Only Planet With Chocolate.)
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To: neverdem

Regressive tax on the poor. Their "settlement" doubled the price of a pack.


9 posted on 03/29/2006 2:46:42 PM PST by mysterio
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To: Gabz
Thanks for the ping. I've been out of town, but see that the nanny state just keeps stealing money, from everyone, especially the poor. The settlement money just goes into the general funds and they waste it along with all the other money.
Now the states have a problem with the reduced amounts from the cigarette companies, this should be fun to see, especially with all the no smoking regulations and the hefty taxes on the packs. All I can say is that all the non smokers will soon see tax hikes to make up the shortfall. When the do gooders throw out junk science reasoning, we all will pay for it, not just the "targeted" groups.
10 posted on 03/29/2006 3:46:46 PM PST by bfree (PC is BS)
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To: neverdem

I love the "freedom" Americans have.


11 posted on 03/29/2006 4:02:44 PM PST by Visalia
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To: hosepipe

You hit the nail on the head. Your post drives the whole thing home. It IS just that simple. Excellent.


12 posted on 03/29/2006 4:13:59 PM PST by 383rr (Those who choose security over liberty deserve neither- GUN CONTROL=SLAVERY)
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To: neverdem

Man, it never stops. I don't much care for handguns -- but I'm getting one this weekend 'cause RATs keep trying to undermine the right. I despise cigarettes, but I swear I'm gonna start sending tobacco companies cash just to subvert the freaking US Congress, otherwise known as THE COSA NOSTRA.


13 posted on 03/29/2006 4:16:27 PM PST by noblejones (Ben Stein for President, 2008.)
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To: hosepipe
The Social Security Sysyem is a socialist boondoggle.. pure and simple and few they be that will admit it.. and OWN the crime..

What???

14 posted on 03/29/2006 5:25:16 PM PST by SheLion (Trying to make a life in the BLUE state of Maine!)
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To: Just another Joe; The Foolkiller; Madame Dufarge; Cantiloper; metesky; Judith Anne; lockjaw02; ...

15 posted on 03/29/2006 5:27:12 PM PST by SheLion (Trying to make a life in the BLUE state of Maine!)
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To: Publius6961
Instead Philip Morris et al. are paying for protection against their competitors, and they are passing the cost on to their customers

Sorry but the only entity I have experienced that is profiting from my usage is my state. The increased cost in my cigarettes is not from the manufacturer but the state of Michigan which now collects over $2.00 per pack in taxes......it may even be up to $2.75 per pack. Not quite sure since they increase it almost quarterly.......or so it seems.

16 posted on 03/29/2006 5:38:38 PM PST by Hot Tabasco
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To: albertp; Allosaurs_r_us; Abram; AlexandriaDuke; Americanwolf; Annie03; Baby Bear; bassmaner; ...
the mafia can only wet dream about doing this kind of crap and getting away with it

Libertarian ping.To be added or removed from my ping list freepmail me or post a message here

17 posted on 03/29/2006 9:09:18 PM PST by freepatriot32 (Holding you head high & voting Libertarian is better then holding your nose and voting republican)
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To: bfree
All I can say is that all the non smokers will soon see tax hikes to make up the shortfall.

That's exactly what will happen. What's next? Coffee?
.
18 posted on 03/29/2006 9:17:23 PM PST by mugs99 (Don't take life too seriously, you won't get out alive.)
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To: SheLion
[ What??? ]

The Social Security Sysyem is a socialist boondoggle.. pure and simple and few they be that will admit it.. and OWN the crime..

19 posted on 03/29/2006 9:53:47 PM PST by hosepipe (CAUTION: This propaganda is laced with hyperbole..)
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