Taxation by Litigation; L. W. Reed

Ideas and Consequences Taxation by Litigation Threatens Every American Business by Lawrence W. Reed • busing the legal system for political, ft social, or greedy ends is fast becoming America's favorite pastime. Billions of dol lars, millions ofjobs, and the survival of legit imate businesses are at stake. And if the Clin ton administration's latest lawsuit fantasy pro ceeds, Katie bar the door: government itself will become the biggest abuser of them all with the potential to threaten dozens of indus tries from fast food to automobiles. Lawsuit abuse will end up costing the Dow Corning Corporation billions of dollars. Even though no reputable scientific study to this day has ever shown a connection between the company's breast implants and disease, the litigation lottery forced Dow Corning into bankruptcy in 1995. Science took a back seat to the greed of trial lawyers and plaintiffs looking for deep pockets.

Gun manufacturers are now facing a simi lar plight, as a· growing number of cities file suit against them for making a product that kills. Never mind that just about any product can kill if that's the intent of its user. City offi cials claim they are simply trying to recover public health and safety expenses that are associated with gun crimes. According to the National Center for Policy Analysis, the costs to society of firearms violence are one-fifth the savings that accrue from the .crimes that firearms ownership prevents. But there's Lawrence Reed is president of the Mackinac Center for Public Policy (www.mackinac.org), afree market research and educational organization in Midland, Michigan, and chairman ofFEE's Board ofTrustees. 18 no guarantee that gun makers won't have to cough up millions anyway. Now comes the Clinton administration to raise the stakes in the national Blame Game.

The Justice Department is preparing a lawsuit against tobacco companies for the stated pur pose of recovering Medicare costs attributable to smoking. Picking on an unpopular industry with a charge that sounds superficially defen sible may be politically shrewd, but the evi dence suggests this is nothing more than a grab for cash with sweeping implications for every American business. It's no secret that the· Clinton administra tion would like to put the tobacco industry out of business or rake in lots of revenue try ing. Its efforts to impose massive new taxes on cigarettes, however, went up in bipartisan smoke last year in Congress. It was also rebuffed in its efforts to have the Food and Drug Administration (FDA) regulate tobacco products as medical devices. The administra tion apparently sees a new lawsuit, but tressed by dubious and far-reaching legal theories, as a way to do an end run around Congress, even though Attorney General Janet Reno has testified that "the federal government does not have an independent cause of action" to sue tobacco firms for health-care cost reimbursement.

This is the same government, incidentally, that for decades until 1974 gave free ciga rettes to the mi1itary~ven after ordering warning labels on cigarette packages in 1966. The Clinton administration that is contem plating a new lawsuit against tobacco companies is the same administration that has denied veterans' requests for coverage of dis eases thought to be related to smoking. Indeed, President Clinton's secretary for vet erans affairs called it a "borderline absurdity" to compensate veterans for their "personal choice to engage in conduct damaging to their health." Writing in the Wall Street Journal (Febru ary 8, 1999), constitutional scholar Robert A. Levy of the Cato Institute explained the atten uated legal notions on which a suit against tobacco firms for health care expenses would have to rest: In effect, Justice will assert that it can recover merely because smoking injured someone protected by Medicare-even though that person, having assumed the risk, would have no right to recover on his own. The same tobacco company selling the same cigarettes to the same smoker and resulting in the same injury will be liable only if the smoker is a Medicare recipient and the government is the plaintiff. Liability thus hinges on the injured party's Medicare status, a happenstance utterly unrelated to any misbehavior by the industry.

What makes the threat of a new lawsuit even more ludicrous is that after factoring in health-care costs, the federal government actually makes money on every pack of ciga rettes sold. That's because the heavy excise taxes smokers pay add up to more than the health-care costs associated with their smok ing. According to the FDA, "the most detailed research on the issue of whether smokers pay their own way is the 1991 study by Manning, et aI., who concluded that 'there is no net externality, because the sum of all smoking related externalities is probably less than the added payments imposed on smokers through current Federal and State excise taxes.'" 19 Moreover, because they don't live as long as nonsmokers, those who smoke contribute far more in Social Security taxes than they get back in benefits. The Congressional Research Service concluded last year that "all in all, smoking has apparently brought financial gain to both the federal and state governments."

Clearly,the Clinton administration seeks to further corrupt the legal system to get the cash it has not been able to secure through higher taxes via the democratic process. If it succeeds in its vendetta against tobacco, who might be next? Michael Baroody, senior vice president of the National Association of Man ufacturers, rightly fears that this action "would set a precedent for federal litigation against industries an administration-this or any other-might not politically favor." The Surgeon General and the FDA warn against high-fat diets; should the Justice Department sue the fast-food industry, bak eries, or the makers of Ben & Jerry's Ice Cream? Why not sue GM, Ford, and Daimler Chrysler to recover the medical costs caused by auto accidents? Cholesterol has been implicated in heart attacks and too much alco hol causes cirrhosis of the liver; perhaps cat tle ranchers should be sued for selling artery clogging beef and winemakers should be hauled into court and made to pay the hospi tal bills for every wino in America. And how about the makers of fertilizer: shouldn't they be forced to provide compensation for any medical costs incurred in the 1995 Oklahoma City bombing?

Whether the subject is breast implants, guns, tobacco, or any other product, abusing the legal system is not a harmless lark. It is an exercise in intellectual corruption, an attack on the democratic process, and a manifesta tion of greed run amok that every consumer and businessman in America ignore at their peril. 0 The Central Fallacy of Public Schooling by Daniel Hager W hen World War II ended, Congress authorized a tax cut to take effect Janu ary 1, 1946.YoungAmerica, a publication dis tributed through public schools, ran an article in its December 13, 1945, issue discussing the measure and presenting a brief history of American taxation. The article concluded with a section titled "Then & Now: Taxes Serve Us." "One hundred years ago," the writer stated, "our government helped the citizens by main taining order. It did little else. Its expenses were low, and so taxes were low." He then quoted Benjamin Franklin's observation in Poor Richard's Almanack in 1758: "It would be a hard government that should tax its peo ple one-tenth part of their income." The Young America writer continued, "In 1940, our Fed eral,· State and local governments taxed us one-fifth of our incomes. But Franklin could not have guessed the tremendous growth of this country." (Emphasis in original.) The writer then offered justification for such high taxes: "As students, our young citi zens are given school buildings. Our govern ment does hundreds of things for us in our everyday life." He finished with a quotation from Supreme Court Justice Oliver Wendell Holmes, Jr.: "I like to pay taxes. It is purchas ing civilization."