Wednesday, April 22, 2009

The Dangers of Using Cigarette Taxes to Fund Essential Government Programs: Financial Partnerships Lead to Big Tobacco Bailouts

Two state legislative committees in Florida yesterday approved measures that would cap the amount of the appeal bonds that tobacco companies must pay if there are judgments against them in the more than 8,000 lawsuits by sick smokers who have sued the companies for damages.

Normally, when a company loses a lawsuit in Florida and there are damages awarded, it must pay an appeals bond equal to the amount of the judgment in order to guarantee that it will pay the damages if they are upheld upon appeal. With more than 8,000 outstanding lawsuits against the tobacco companies, state lawmakers have become worried that the payment of these bonds might jeopardize the payments that the tobacco companies make to the state of Florida under the state's tobacco settlement -- money which goes towards a variety of critical government programs and services. Thus, in order to protect the state's financial interests, lawmakers have proposed giving the tobacco companies special protection by capping the total amount of the appeals bonds they would be required to pay.

According to an article in the St. Petersburg Times: "More than 8,000 sick smokers in Florida have sued the tobacco industry for misleading claims but on Tuesday two legislative committees pushed through bills that will cap how much the industry is required to set aside in the event it loses those cases. The House Finance and Tax Council and the Senate Judiciary Committee passed similar bills that would shield Philip Morris, R.J. Reynolds Tobacco and Lorillard from having to post hefty bonds as they face an avalanche of lawsuits from smokers. The measures would allow the three companies to set aside a total of no more than $100 million in bond money in order to appeal the verdicts. Under state law, when a company loses a lawsuit and wants to appeal, it must post a bond for the entire amount of the judgement."

"Trial lawyers complained the measures will remove the financial incentive for the tobacco giants to pay their judgements or settle their cases. Instead, they said, it will encourage the companies to pursue endless appeals and delays designed to financially break plaintiffs or wait until they die."

"Promoters of the bills — House Finance and Tax Council chairwoman Ellyn Bogdanoff and Melbourne Republican Sen. Mike Haridopolos — said the measure is needed to give the industry financial certainty, and to protect the state's annual $205 million payment by the tobacco companies as part of the landmark 1997 settlement with the industry." ...

"Robert Hanrech, a Miami lawyer representing some tobacco plaintiffs, said that in a Feb. 26 Goldman Sachs statement to shareholders, one tobacco company said the 8,000 claimants stemming from the class action lawsuit "fails to pose a significant threat. 'This would be a bailout for tobacco,' he said. 'They would be getting an unfair advantage when they don't need it.'"

The Rest of the Story

This story reveals that the Master Settlement Agreement, individual state settlements with tobacco companies, and cigarette tax increases that use tax revenues to fund essential government programs have a disastrous side effect on the public's health: they create a financial partnership between the states and tobacco companies which leads state lawmakers to go to great extremes to protect the financial interests of Big Tobacco, even when that protection represents a government bailout and is completely unnecessary.

The Florida legislature has become the greatest friend that Big Tobacco could ever ask for. As a result, it turns out that the settlement of the state's lawsuit against the tobacco industry had the worst possible consequences for the public's health. Not only has the state failed to use the settlement revenues to fund anti-smoking programs, as was originally intended, but state lawmakers have now become the industry's greatest financial allies, going to unprecedented extremes to protect tobacco company profits.

Large increases in cigarette taxes create the same problem when the revenues are allocated towards essential government programs, rather than towards programs that are directly related to smoking and smoking-related diseases. The government becomes dependent upon high levels of cigarette consumption for the solvency of its essential programs, and lawmakers thus become financial advocates for Big Tobacco, with a vested interest in working to protect the companies from any policies that would substantially reduce cigarette consumption.

The tragedy of the Florida lawmakers' actions is that individual citizens are being denied their legal rights to hold the tobacco companies accountable for their actions. Their legal rights are being sacrificed to bail out the cigarette companies and to protect the financial interests of the state of Florida. The measure ensures that very few of the sick smokers in Florida will receive damages, even if juries award them. It also ensures that lawyers will be reluctant to file any tobacco litigation in the future.

Essentially, Florida lawmakers have rewarded the tobacco companies with virtual immunity from litigation. The price for that reward: nothing other than having the brilliance to take advantage of the money-seeking greed of state politicians.

This should be a warning signal to tobacco control groups to re-think their support for large cigarette tax increases where the revenue is used to fund non-tobacco-related programs. These policies create a financial dependence of the state budget on continued high levels of cigarette consumption and make the states financial partners of Big Tobacco.

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