GOP Considers Tobacco Levy to Finance Tax Cut

Dealing one more blow to the proposal for a massive tobacco settlement, Republicans are beginning to talk seriously about a stand-alone tobacco tax increase, a step that would deprive the overall tobacco settlement of one of its most attractive features.

Under consideration is a tobacco tax increase of perhaps 75 cents or $1 per pack. The revenue would be used primarily to finance an individual tax cut, with some funds set aside for states to enforce stricter controls on youth access to tobacco.

“Let’s say we don’t get a tobacco settlement, then Republicans would have to look at whether we raise taxes on tobacco and use that money to give Americans a broad-based tax cut,” said House Budget Committee Chairman John R. Kasich (R-Ohio).

Sen. Pete V. Domenici (R-N.M.), Kasich’s counterpart in the Senate, said a cigarette tax would be on the table next week when Republicans hold their annual retreat to map legislative strategy.

Such a tax will run up against opposition from Republicans who represent poor districts, particularly in the South, because smokers tend to be in lower income brackets.

But the fact that Republican leaders are discussing a tax betrays both the chaos within the party over how to handle the tobacco issue and the shift in the fortunes of the once-powerful tobacco industry in Congress.

It also reflects Republicans’ deep desire to have some money to spend for tax cuts. President Clinton put $65.5 billion in new tobacco revenue over five years in his fiscal 1999 budget and would use it to pay for some of his favorite programs, such as child-care and health-care initiatives.

“We’ll see him and raise him,” said an aide to Congress’ Republican leadership. “Consider this an aggressive trial balloon.”

A cigarette price increase was part of the wide-ranging settlement reached last June between the tobacco industry and 40 states that had filed lawsuits against the tobacco companies to force them to pay the states’ share of the cost of treating lung cancer and other smoking-related illnesses.

The agreement requires congressional approval because certain provisions, such as the protection against some kinds of lawsuits and the limited antitrust exemptions, can only be conferred by federal legislation.

The settlement promised the companies limited liability in future lawsuits. In return, the companies agreed to scale back marketing and advertising aimed at children, accept regulation by the Food and Drug Administration, finance programs aimed at deterring young people from smoking and reimburse the states for their tobacco-related health costs.

However, if Congress raises tobacco taxes outside of comprehensive tobacco legislation, it is extremely unlike that the industry would get the legal protections it seeks. And without those, said J. Phil Carlton, the lead lawyer and negotiator for the industry, the companies would not agree to many of the settlement’s other features.

In that case, Carlton said, “we’re out of here. We take the goodies that the public health people want and leave.”

State attorneys general were similarly perturbed by the idea, which they regard as one more way that the whole settlement could unravel.

“If you use the money [from a tobacco tax increase] for a tax cut, then you miss all of the health benefits in the settlement,” said Arizona Atty. Gen. Grant Woods.

He emphasized that the settlement’s provisions to curtail marketing and advertising needed the industry’s consent because legislation to accomplish those ends would violate the 1st Amendment.

“What will happen if [the settlement falls apart] is that it will fall back to the states to resolve these matters,” Woods said, “and some states will do very well and some will do very poorly, but we clearly won’t have the comprehensive national policy.”

Public health proponents agreed that Congress would miss a rare opportunity to enact a national anti-smoking policy if it was satisfied to enact a tax increase.

“We’re going to hear a lot of different proposals while Congress figures out what it’s going to do,” said Matthew Myers, general counsel for the National Center for Tobacco-Free Kids.

Other groups are less critical of the idea.

Marshall Wittmann, director of congressional affairs for the Heritage Foundation, a think tank that is often a benchmark of conservative ideology, expressed approval of increasing tobacco taxes to pay for a broad-based tax cut. “Conservatives can swallow certain revenue enhancers if it balances out for the taxpayer,” he said.