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.
MSA ping
The Social Security Sysyem is a socialist boondoggle.. pure and simple and few they be that will admit it.. and OWN the crime..
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.
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?
For later...........I'm out the door right now.
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..
"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?
Regressive tax on the poor. Their "settlement" doubled the price of a pack.
I love the "freedom" Americans have.
You hit the nail on the head. Your post drives the whole thing home. It IS just that simple. Excellent.
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.
What???
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.
Libertarian ping.To be added or removed from my ping list freepmail me or post a message here
The Social Security Sysyem is a socialist boondoggle.. pure and simple and few they be that will admit it.. and OWN the crime..
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