Smoke-Filled Rooms

National Review, August 3, 1998 by John O'Sullivan

A retrospective look at the aftermath of the Great Tobacco Wars of the 1990s.

HARD to imagine though it is from the perspective of 2008, the Senate's passage in June 1998 of an amendment to lift any liability protection from the tobacco companies went almost unnoticed. It fell into even deeper obscurity when the first tobacco bill was defeated. Yet today we teach it in schools as an event comparable to the Boston Tea Party or the firing on Fort Sumter.

At the time conservative opponents of the amendment argued that it could drive the tobacco companies into bankruptcy. But one far-sighted law professor saw that that was its great advantage -- and its potential to heal a division in the anti-tobacco coalition. On the one hand, the activists had long wanted to punish the tobacco companies; on the other, the politicians did not want to kill the geese that laid such golden fiscal eggs. How to square this circle?

Professor (now Justice) Laurence Tribe pointed out that bankruptcy could be used to compel the tobacco companies to finance social reform indefinitely -- through both taxes and lawyers' fees. Others were skeptical. How could a company continue trading without funds? But the beauty of Tribe's legal insight was that one social advance led directly to the next.

The Corporate Partnership (Extension) Act, fashioned by Tribe and piloted through the 2002 Congress by Speaker Frank and Senate Majority Leader Wellstone, dealt with the problem by the simple step of abolishing the principle of limited liability in the tobacco industry. Its shareholders were made liable for all its debts, including punitive fines, to the full extent of their private fortunes. The law did not expropriate such fortunes outright, since that would have involved a measure of injustice by treating all shareholders equally; instead it imposed an annual capital levy -- graduated according to income and with certain exemptions (e.g., union pension funds).

Surprisingly, this ingenious solution did not carry the day when first introduced in 2001. A constitutional objection was that the CPEA was a bill of attainder and so forbidden by the Constitution. Since Congress was controlled by Republicans, some of whom had a dogmatic commitment to the words of a written constitution, this objection was treated seriously. But Rep. Deborah Pryce (whom Speaker Gingrich had appointed to fashion the GOP policy on tobacco before he resigned to run for the presidency of Pepperdine) united most Republicans around a more thoughtful approach. Her argument was that bills of attainder, though clearly dubious when employed by a despotic monarch like George III, lost their taint when a democratic government used them against ``substance pedophiles.'' The Souter Court has since built a substantial body of case law on Rep. Pryce's ``legal criminals'' insight, but at the time it was controversial among constitutional hard-liners. The CPEA might have languished if the Democrats had not regained Congress in 2002.

That changed everything. Mississippi's junior senator, Michael Moore, demolished the constitutional objection by pointing out that bills of attainder were directed against known persons, whereas the tobacco companies were composed of constantly changing shareholders. There was a brief hitch when a group of share- hold- ers challenged this claim by arguing that since the bill's first publication, trading in tobacco shares had ground to a halt. But the objection was withdrawn when Attorney General Clinton had several tobacco executives and shareholders arrested for ``insider non-trading.'' A 5 to 4 Supreme Court decision agreed that the CPEA passed constitutional muster, Justice Hatch providing the swing vote.

In retrospect, reformers can claim considerable success. The tobacco companies ceased manufacturing, distributing, and selling cigarettes. They became financial intermediaries between certain classes of their shareholders, plaintiffs, lawyers, and the government.

Nor is tobacco a legal substance. Campaigns by the anti-smoking activists, financed from the tobacco levy, achieved outright prohibition across the U.S., beginning in California, Massachusetts, Puerto Rico, and Barry-land.

Initially, this created problems as governments lost major tobacco tax revenue. Also, states like Florida, with numerous retirees, and federal programs like Medicare encountered the ``geriatric crisis'' as demand for supplemental retirement income, long-term residential care, and life-support medical technology all rose faster than predicted.

To deal with these fiscal pressures, and to meet civil-rights concerns over the plight of the ``coercively addicted,'' former Sen. Daniel Patrick Moynihan (now the Ambrose Bierce Professor for Social Policy at Chicago) drew on his early experience as ambassador to India where ``dry'' states allowed visitors to register as alcoholics in order to consume alcohol. He proposed a similar humanitarian exception to American anti-nicotine laws -- and today slightly over half the adult U.S. population consists of registered nicotine addicts. As well as relieving fiscal pressures, this had the unexpected but welcome effect of significantly reducing social discrimination against all classes of addicts (crack, cocaine, heroin, etc.) by removing any stigma from the concept of addiction. It is too early to say if this will produce other social changes over time.