Feds and smokers fume over the right to inhale

0 Comments | Insight on the News, April 24, 1995 | by Hank Cox, | Valerie Richardson

While few people deny the hazards of smoking, some researchers claim that the risks are exaggerated and social costs inflated. A 1991 study by the Rand Corp. put the net external cost of cigarette smoking at 33 cents per pack; since existing federal, state and local taxes on cigarettes total more than 50 cents per pack, smokers more than pay their own way.

The impact of tobacco on the economy becomes even more smoky when Social Security and other pension programs are factored in. John Shoven, an economist at Stanford University, estimates that the 26 billion packs of cigarettes smoked in 1989 shortened smokers' lives by 3 million years, and that their premature deaths saved $20,000 per smoker in Social Security benefits alone. The Congressional Research Service, in a report issued March 8,1994, observed that "smokers' early deaths leave their Social Security and pension contributions unused and available to reduce future financing demands on nonsmokers."

More controversial still is the issue of secondary smoke. The Environmental Protection Agency in 1993 claimed secondary smoke was responsible for up to 3,000 cases of lung cancer annually. But the EPA report has been challenged by a diverse array of credible scientists. EPA performed no original research but relied instead on a survey of 30 other studies, of which only six discerned a statistically significant (but small) effect of secondary smoke on nonsmokers. Of the remaining 24 studies, six actually showed a reduced incidence of illness among those exposed to secondary smoke.

While the Clinton administration and major federal agencies target tobacco for strict regulation, other branches of the national government continue their long-established tradition of supporting prices and allotting production quotas. The Tobacco Institute insists tobacco is not subsidized; strictly speaking, it isn't. But the Rube Goldberg scheme that controls tobacco production, a holdover from the New Deal of the 1930s, is wildly out of step with the free-market agenda now dominant in Congress.

Only people who own "quotas" can legally grow and sell tobacco, and quotas are passed along from generation to generation. A large number of people who inherited tobacco quotas do not actually grow any crop. Currently, there are 380,000 quota holders but only 100,000 tobacco farmers - those farmers pay the quota holders a fee for use.

Tobacco farmers are guaranteed minimum prices through price supports in exchange for limiting production. Most of these subsidy costs are paid by producers and purchasers through market assessments. (Administrative costs of about $15 million a year are borne by taxpayers.) The sum effect: The price of tobacco stays higher than it would in a free market, while excessive supplies of the crop accumulate in warehouses.

As foreign nations stepped up competition and made it more difficult for the United States to maintain artificially inflated price levels, the domestic tobacco industry lobbied Congress to limit imports of foreign tobacco. Since 1993, any U.S. cigarette maker who uses more than 25 percent of foreign tobacco must pay a penalty. Foreign producers naturally complain that price supports violate the General Agreement on Tariffs and Trade, created specifically to discourage arbitrary barriers to imports and exports. Industry experts worry that when Congress is forced to address this problem, it simply will eliminate price supports.