How the McCain Bill Will Affect Smokers’ Wallets and the Underground Cigarette Market
Special Report No. 79
In June 1997 representatives of the tobacco industry reached an agreement with a number of state attorneys general. Under this settlement the industry would pay federal and state governments as well as other entities $368.5 billion over the next 25 years and would agree to accept a host of new regulations and restrictions on tobacco marketing, advertising, and product access. In exchange, the settlement placed limits on both future litigation against the industry and on the Food and Drug Administration’s authority to regulate tobacco products and smoking.
Any settlement of this type would require federal legislation. As a result the Senate Commerce Committee set about drafting legislation codifying the settlement. On April 29, 1998, the Committee reported out the National Tobacco Policy and Youth Smoking Reduction Act (herein referred to as “the Act”), sponsored by the Committee’s Chairman, Sen. John McCain (R Ariz.). This Act would require that the industry make much larger payments than those called for in the initial settlement. It also sharply curtails or eliminates some provisions viewed as favorable to the industry.
The first half of this report examines the financial impact this legislation is likely to have on smokers. The second half looks at a phenomena that has arisen in other countries when they have raised tobacco taxes by similar magnitudes — a growth of an illegal tobacco market and an increase in cigarette smuggling.