Feinstein Fears Tobacco Black Market

Despite representing one of the most anti-smoking states in the country, California Democratic Sen. Dianne Feinstein is considering joining Utah Republican Sen. Orrin G. Hatch in trying to weaken tough tobacco legislation being debated on the Senate floor.

The reason: She worries that a big tax on tobacco will create a black market for cigarettes that could add to law enforcement’s woes.

Feinstein’s name appears with Hatch’s on a yet-to-be introduced substitute bill that is similar to the widely criticized proposal to end tobacco litigation announced last June by industry negotiators and state attorneys general.

The bill, which would could be introduced later this week, would take the place of legislation sponsored by Sen. John McCain (R-Ariz.). The McCain bill goes far beyond the proposed settlement in hiking cigarette prices and raising money for anti-smoking programs, while eliminating most of the liability protections sought by the cigarette makers.

Hatch, traditionally a staunch tobacco foe, fears the McCain bill goes too far and that the industry might successfully challenge some of its requirements on constitutional grounds. Hatch would raise cigarette prices by close to 80 cents a pack compared to the $1.10 hike contained in the McCain bill.

Feinstein said she is unhappy with the McCain bill because she thinks raising the price of cigarettes by that much would increase cigarette smuggling, particularly in border states such as California.

“I’ve got some concerns,” she said. One “is the likelihood of a major black market. . . . This is a big bill, we have to understand how the pricing works.”

In an interview, Feinstein did not say if she would join with Hatch in offering the bill. But lobbyists deeply involved in the fight said she was working with the Utah senator on a more modest package, and The Times obtained a copy of a summary of the bill, prepared by Senate staff, which called the measure the “Hatch-Feinstein Tobacco Substitute.”

The black market warning has become a principal theme of tobacco industry attacks on the McCain bill. Supporters argue, however, that even with the $1.10 per pack price increase, cigarette prices in the U.S. will remain at or below those in most industrialized countries, where cigarette taxes are even higher.

By imposing higher cigarette prices on consumers, the McCain bill would bring in an estimated $516 billion over the next 25 years, compared to a projected $430 billion with Hatch-Feinstein. On the question of legal liability, the Hatch-Feinstein approach would grant the tobacco industry protection from the most damaging types of lawsuits, including private class actions and lawsuits by states. By contrast, the biggest benefit for the industry in the McCain bill is a cap of $8 billion on judgments and settlements, compared to $5.5 billion in the Hatch-Feinstein approach.

Feinstein is already taking hits from some home-state anti-smoking activists for her position. “It’s absolutely appalling,” said Stanton Glantz, a UC San Francisco medical professor and a leading foe of cigarette manufacturers. “She’s giving the industry the farm. . . . I mean, she’s totally out of step with the people of California.”

Feinstein’s support for a more tobacco-friendly bill is but the latest sign that in the smoking wars, the traditional world of Washington power politics has been turned upside down.

McCain and other Republicans--ostensibly the champions of smaller government and lower taxes--are leading the charge on a measure that would bring unprecedented regulation to a single industry, dramatically raise cigarette taxes and fund the kind of public health crusade that is usually backed by liberal Democrats. Ironies abound.

“The politics of the entire package are fairly phenomenal,” marveled a tobacco industry lobbyist, noting that the unusual pairings go beyond Feinstein with Hatch, and Republican McCain’s alliance with the Clinton White House in pushing the sweeping legislation.

Sen. Alfonse M. D’Amato (R-N.Y.) is voting for a huge tax increase in an election year. Sen. Ernest F. Hollings from the tobacco-growing state of South Carolina is siding with McCain. And perhaps most paradoxical, anti-tobacco lawyers and the industry they forced to the bargaining table through massive lawsuits are both taking potshots at the McCain bill.

Without a bill that is more to the industry’s liking, the lawyers fear the companies will balk at paying hefty attorneys’ fees on top of the cigarette price hike of at least $1.10 proposed by McCain. If the industry likes the legislation, they reason, it will not resist the added burden of paying legal fees.

John Coale, one of the anti-tobacco lawyers, argues: Whatever legislation emerges this week could blow “this industry apart, so I’ve done my job, and, hopefully, I’ll get paid.”