Monday, September 05, 2005

Minnesota Sued by Philip Morris over Health Impact Fee on Cigarettes: What Goes Around Comes Around

Philip Morris filed a motion in a Minnesota state court on August 26 seeking to overturn the 75 cents per pack "health impact fee" on cigarettes recently enacted by the legislature. The company claimed that the a health impact fee on cigarettes is a violation of Minnesota's tobacco settlement with cigarette companies, in which the state agreed not to make further claims to recover health care costs associated with cigarette use.

While it is unclear if the legal challenge will be successful, it is causing problems, as the state now has to spend money defending itself in the suit, the $400 million in revenue that the state is counting on from the increased cigarette tax is now threatened, and legislators are already considering the need for a special legislative session because of the court challenge.

The Rest of the Story

This story is a little too ironic: the entire problem arises from the Governor's and legislature's attempt to hide the fact that the 75 cent per pack "fee" on cigarettes is simply a tax. If these politicians had simply told it like it is, and admitted that the purpose of the legislation was to raise the cigarette tax in order to balance the budget, then this problem would never have occurred. Instead, they tried to disguise the tax increase as a "health impact fee," and that opened them up to this lawsuit.

The problem is that Minnesota, in the settlement of its lawsuit against the tobacco companies which sought to recover tobacco-related Medicaid health care costs paid by the state, agreed not to make further claims to recover tobacco-related health care costs. But this legislation is intended to "recover for the state health costs related to or caused by tobacco use" and allocates some of the resulting revenues to tobacco-related health care costs.

There is nothing in Minnesota's tobacco settlement which precludes it from raising cigarette taxes and the state can certainly allocate those revenues however it sees fit. And here's the irony. What would have indisputably been a legal action of the state to balance its budget by raising the cigarette tax became a potential violation of the tobacco settlement because politicians, for political reasons, wanted to disguise the fact that this was simply a cigarette tax.

Their lack of forthrightness has come back to haunt them. Even if the lawsuit fails, the state is now going to spend substantial funds to defend itself, and just the threat of losing $400 million in revenue has cast doubt over whether the state budget will be in turmoil.

It's time that politicians and health groups alike start calling things the way they are. The supposed health impact fee is nothing other than a thinly veiled disguise: it is simply a measure to balance the budget in a way that avoids having to make difficult political choices, such as raising taxes on the wealthiest of citizens and corporations in Minnesota. Instead, the governor and legislature have picked an easy target: smokers.

On the day that this tax increase was enacted by the legislature, I argued that: "What just transpired in Minnesota, in my view, is nothing more than a discriminatory and regressive tax increase for some of the poorest citizens in the state, for the benefit of the wealthiest citizens and corporations."

Now people may argue about the merits of this cigarette tax increase. Anti-smoking advocates have argued that this cigarette tax increase is justified because it will decrease cigarette consumption and thus improve health. I have argued that the tax is unfair and discriminatory as it balances the state's budget on the backs of smokers and protects the wealthiest citizens and corporations from having to pick up their share of the burden of balancing the state budget.

But regardless of how one views the merits of the tax increase, let's call a spade a spade. To try to disguise this as a "health impact fee" is disingenous and represents little more than a political maneuver to make the tax increase seem more palatable, especially from an administration that apparently had pledged no new taxes.

This is not appropriate and justified public health policy - this is simply the political balancing of a budget on the backs of smokers. And for a major anti-smoking organization (the Campaign for Tobacco-Free Kids) to have applauded this as a "victory" for taxpayers in Minnesota is, I think, unfortunate.

The rest of the story reveals that in attempting to pull the wool over the public's eyes in order to push through a budget-saving measure without making it seem that the government was breaking its pledge not to raise taxes, the governor and legislature of Minnesota have created a potential legal and fiscal mess.

It would have served the public's interest far better to simply have been forthright and told it like it is. I think what goes around does come around, and the truth usually wins out in the end.


Bill Godshall said...

While you are correct that Minnesota's legislature should have simply called it a tax (instead of a health impact fee), your proposed policy for cigarette taxation would benefit only the cigarette industry and would dramatically increase smoking rates (if implemented at the local, state and federal level).

In fact, your cigaratte tax policy proposal would eliminate the federal cigarette tax, the vast majority of state cigarette taxes, and probably all local cigarette taxes (as only a few cigarette tax increases included appropriations for smoking prevention and cessation programs).

Michael Siegel said...

Don't take my comments too far; I'm not calling for a repeal of state and federal cigarette taxes. My arguments are really directed at current and future tax proposals.

Michael J. McFadden said...

Think how dramatically we could reduce driving deaths among youth by raising the gasoline tax level to $5 a gallon. Sure some adults would get stuck with ponying up a bit more money... but it's for the children, right? And as a side benefit we'd all have cleaner air! And the overall health of the poor would dramatically increase as many of them started walking and bicycling to work!

Winner all around!!!

Michael J. McFadden
Author of "Dissecting Antismokers' Brains"

Bill Godshall said...

McFadden forgot to include (as benefits of an increased gasoline tax) nationaly security (due to less dependance on foriegn oil), more fuel efficient vehicles and the development of alternative energy sources.

The Europeans appreciate the many public benefits of increasing gasoline and cigarette taxes.