Tobacco Wars Head to Final Battlefield

Congressional hearings this week have made clear that the tobacco deal negotiated last spring between the states and the Big Four cigarette companies will be one of the most controversial issues Congress takes up next year.

While the deal was negotiated at the state level, many of its provisions require new federal legislation. President Clinton has already asked for changes. Now, federal lawmakers must tackle an unusually complex combination of issues in several bills in what is shaping up as a many-sided struggle - and they will have to do so in a highly charged election-year atmosphere.

Should Congress reach a consensus - by no means certain - it will set far-reaching policies with long-term economic, legal, and social consequences. The process will involve interest groups that the political parties count among their major contributors: tobacco companies in the case of Republicans and trial lawyers on the Democratic side.

The end result could vary significantly from the package negotiated by state attorneys general and Big Tobacco. Many on Capitol Hill, for example, want cigarettemakers to pay more. In an early dispute, the federal government and the states are arguing over the huge pot of funds tobacco firms have agreed to pay as part of the proposed settlement.

"These settlements are not windfalls for the states - they have done the work and taken the risks and deserve to reap the rewards," argues Rep. Michael Bilirakis (R) of Florida, who chaired some of this week's House hearings into various aspects of the settlement.

The deal was reached in June after some 40 states filed lawsuits against cigarette manufacturers. It requires tobacco companies to pay the states $369 billion over 25 years - about $100 billion more than the nation's annual defense budget. The state-federal dispute over divvying up the money began Nov. 3, when the Health Care and Financing Administration (HCFA) wrote to all 50 states declaring that federal law requires Washington to get half the payments.

The states howled in protest. "Medicaid recovery was only a small piece of our case," says Gov. Lawton Chiles (D) of Florida. "The bulk of the money we won in the settlement is paying the state back for the fraud, deception, and racketeering that the tobacco companies perpetrated on the people of Florida."

Resolving the dispute is Congress's job

HCFA administrator Nancy-Ann Min DeParle took a conciliatory tack at this week's hearings, echoing Mr. Clinton's request that Congress resolve the issue. Representative Bilirakis has introduced a bill that would let states keep the payments. As part of the settlement, the states have already agreed to use some of the money to support federal antismoking programs.

But money is just one concern confronting lawmakers here. The hearings also looked at the issue of reducing teen smoking, which Clinton calls his "overriding goal" in any final package.

Public-health officials and antismoking groups say cutting teen smoking is necessary to reduce smoking overall. The federal Centers for Disease Control (CDC) in Atlanta reports that more than three-quarters of adult smokers tried their first cigarette before age 18 and more than half become daily smokers before that age.

But how to reduce the number of teens lighting up is a matter of dispute. Health officials such as the CDC's Michael Eriksen call for a hike in the federal cigarette tax and limits on tobacco ads aimed at young people. "Studies ... clearly demonstrate that increases in the price of tobacco products reduce the use of both cigarettes and smokeless tobacco among adults and youths," Mr. Eriksen says.

But J. Howard Beales, a public-policy professor at George Washington University here, says peer pressure and the behavior of adults who are close to young people are the most significant factors in encouraging teenagers to smoke. Advertising, he says, "is simply not a factor in deciding whether to smoke." Mr. Beales says the costs must exceed the benefits teens think they get from smoking; he suggests fines for teenagers caught with cigarettes.

Some fret that raising cigarette prices could lead to a mob-dominated, Prohibition-style black market in low-cost, high-nicotine cigarettes. "Significant criminal black-market activities are occurring today both in the United States and Canada," says Rep. Thomas Bliley (R) of Virginia, House Commerce Committee chairman. "It is much more serious than most people know."

John Magaw, director of the US Bureau of Alcohol, Tobacco and Firearms, estimates that several high-tobacco-tax states are already losing hundreds of millions of dollars because of smuggling from low-tax states such as Virginia, Kentucky, and the Carolinas. When Canada hiked cigarette taxes in the early 1990s, smuggling from the United States skyrocketed until anywhere from 15 to 60 percent of cigarettes sold in various Canadian provinces were contraband.

Then there's the issue of attorneys' fees

Other thorny issues for lawmakers include the fees charged by private attorneys who are helping the states in their anti-tobacco lawsuits, and the proposal to limit tobacco companies' liability for illnesses doctors say are caused by smoking.

Several Hill Republicans have expressed outrage over the billions of dollars in fees law firms could earn from the deal. Consumer groups, trial lawyers, and many Democrats, meanwhile, oppose any limits on lawsuits by those who say they have been harmed by smoking.

Congress must also decide how to help tobacco growers, especially family farmers, switch to other crops. Sens. Richard Lugar (R) of Indiana and Wendell Ford (D) of Kentucky have introduced competing bills to ease the transition.