January 25, 2006

Tobacco, The MSA, and State Finance

Three columns--one by George Will, a second by Idaho AG Lawrence Wasden, and a third, written by Michael Siegel in response to the second--that were written earlier this month explore the impact of the tobacco settlement on state government finances.

Will asserts that the initial fraud case that accused big tobacco of fooling people into thinking that "low tar" cigarettes were healthier and thereby increased the cost of health care for state governments was more than a little dubious, and that the whole tobacco settlement might be unconstitutional because of a constitutional provision that states can't enter into compacts with other states without Congress' permission. Wasden retorts that the case has been reviewed so many times, in so many courts, that Will is standing on shaky ground by making such a claim.

Will is right about one thing--states have become over-reliant on cigarette-based revenue, whether from the tobacco settlement or from taxes. States have a public health incentive to reduce the incidence of smoking, but a financial stake in keeping people puffing away. Siegel goes a step beyond that and accuses several state Attorneys General of actually limiting the liability of tobacco companies (particularly with regard to other states) so that their own states do not risk suffering the loss of tobacco revenues, should the ruling ever change, or should smoking rates take a major dive.

From the perspective of state governments moving towards sustainable, stable revenue streams, all of these columns should stand as a warning. Tobacco settlement money should be viewed as a bonus, not as a cornerstone of a state's fiscal structure.


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