The Federal Tobacco Lawsuit is Bad Economics, Bad Law & Bad Governing

The federal lawsuit against tobacco companies announced today by Attorney General Janet Reno is bad economics, bad law and bad governing, says a National Policy Analysis #255 paper published by The National Center for Public Policy Research.

The paper points out several problems with this lawsuit:

* Economics: The Justice Department alleges the federal government is due money from tobacco companies because the government loses money when citizens purchase and use tobacco products. This is bad economics: Government actually profits more than tobacco companies from tobacco sales. Government takes in an average 53 cents per pack in tobacco taxes while it saves, in the form of a reduction in Social Security and other costs of programs for America’s elderly, an average of 32 cents for every pack of cigarettes sold. According to the New York Times, tobacco companies make about 28 cents per pack of cigarettes sold.

* Law: The Justice Department will probably lose this lawsuit. In 1997 Attorney General Reno herself agreed that there are no legal grounds for this suit.

* Governing: According to Senator Judd Gregg (R-NH), an anti-tobacco politician who chairs the Senate subcommittee with oversight over the Justice Department’s budget, the Justice Department’s legal division is already overworked, and the Justice Department is facing a budget cut this year. Pursuing this suit takes needed resources away from other Justice Department projects that are more likely to succeed.

"Even in the unlikely event that the federal government wins or settles this lawsuit," said Amy Ridenour, president of The National Center for Public Policy Research and author of the paper, "the poor and lower middle class will pay for most of any ‘damages’ the government wins. Tobacco companies will raise the price of cigarettes to pay for the suit, making any award or settlement an indirect tax on smokers. Fifty-three percent of all federal tobacco taxes are paid for by people who make under $30,000 per year, and only 7 percent by people making over $75,000 per year." Ridenour added: "Since the lawsuit will probably lose, however, the taxpayers will be stuck with the tab for legal expenses."

National Policy Analysis #255, "A Federal Tobacco Lawsuit: Bad Economics, Bad Law and Bad Governing" is available on the web at or from David Almasi at (202) 507-6398 x106 or [email protected].

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.