Carl Horowitz

Nobody has ever accused government of lacking imagination when it comes to raising revenue. And flying under the radar screen for nearly a year has been a pending federal rule change whose effect will be to lighten the wallets of certain smokers.

The Alcohol and Tobacco Tax and Trade Bureau (TTB), part of the U.S. Treasury Department, is likely to redefine "little cigars," an industry term, as cigarettes. Last October 25, the TTB published a proposed rule, "Notice No. 65, Tax Classification of Cigars and Cigarettes," in the Federal Register.

It may seem an arcane distinction. But in fact much is at stake, fiscally and philosophically. And we've got some familiar dubious friends to thank for the confusion.

Last May the Attorneys General (AGs) of 39 states and Guam petitioned the TTB to close what they saw as a regulatory loophole that allowed manufacturers of small cigars to market their product as something other than cigarettes, thus avoiding marketing restrictions and higher taxes. The AGs were angered by the tobacco industry's apparent circumvention of social responsibility.

"The manufacturers of so-called 'little cigars' are deceiving and endangering consumers and our children, and federal rules allow them to get away with it," fumed California Attorney General Bill Lockyer.

The battle still rages, as the TTB has extended the comment period until this March 26. It's another round in the states' continuing battle with Demon Tobacco.

Back in the Nineties, if one remembers, the AGs launched a legal offensive against the tobacco industry. Mississippi Attorney General Mike Moore was the first out of the gate. Closely advised by trial lawyer Richard Scruggs, the State of Mississippi filed suit against major tobacco companies, seeking to force them to reimburse Medicaid expenditures for smokers. Other states soon followed with copycat suits. It seemed like an uphill battle, but some creative rule-making shifted the balance of power.

Juries up until this point consistently had rejected monetary damage claims that smokers were unaware of health risks and that smoking directly causes lung cancer and other illnesses. But in 1994, the Florida legislature passed the Medicaid Third-Party Liability Act, barring defendants, such as tobacco companies, from invoking these defenses in cases of Medicaid reimbursement. It was a legal coup, as its creators later openly admitted.

"I took a little-known statute called the Florida Medicaid recovery statute, changed a few words here and a few words there, which allowed the State of Florida to sue the tobacco companies without ever mentioning the words 'tobacco' or 'cigarettes,'" crowed Florida trial lawyer Fred Levin. "It meant it was almost a slam dunk."

Carl Horowitz

Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Gold Partner organization dedicated to promoting ethics in American public life.
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