CIGARETTE TAXES AREN'T AN ENDLESS SOURCE OF REVENUE

THERE'S no rest for the weary tobacco company attorneys. Just a few weeks
after they nailed down a $206 billion settlement with 46 state attorneys
general, they are bracing for yet another lawsuit, this one from the federal
government.

The feds, frustrated by the failure of Congress to pass major tobacco
legislation last year, hope a lawsuit will accomplish what lawmakers
couldn't. The government is hoping for billions of dollars and concessions
from Big Tobacco on such sticking points as government regulation of
nicotine and advertising restrictions.

President Clinton announced the planned suit during an unscripted moment in
the State of the Union address. He said the money -- no specific figure has
been proposed -- would be used to bolster Medicare. Just days before, the
administration had said it would raise the federal cigarette tax by 55 cents
a pack and claim a portion of the states' tobacco settlement money to cover
its own Medicaid costs.

Our first reaction: What, another lawsuit? Isn't there a way to make the
tobacco industry repent of its past sins without generating billions in
legal fees? Besides, there is some doubt that sick smokers actually cost the
federal government money in the long run because by dying young they fail to
collect Social Security benefits.

Yet in this case, the federal lawsuit may be both necessary and wise.
Necessary because the 1962 Medical Cost Recovery Act requires the government
to seek compensation for its medical costs when the illness or injury is
caused by a third party. Wise because the threat of a lawsuit might entice
the industry to the bargaining table, and this time congressional approval
of a settlement would not be necessary.

If the Justice Department goes ahead with its lawsuit, what happens to the
other anti-tobacco weapons in Clinton's arsenal? The president did not
mention the 55-cent tax increase in his speech, but the $8 billion such a
tax would generate is expected to be included in the president's budget
proposal. He did not mention the feds' attempt to grab some of the state
settlement money, a move that may die a deserved death through Senate
legislation.

We support higher cigarette prices to discourage teens from smoking. But
counting on cigarette tax revenues to pay for federal social service
programs is a bad idea. It feeds the image of Democrats as tax-and-spend
liberals. It promotes dependence on federal dollars that will dry up as
tobacco consumption decreases. Besides, cigarette prices are going up
without a federal tax increase. California just raised its tax 50 cents and
the industry raised prices another 45 cents to pay for the settlement with
the states. No doubt another price increase would be part of a federal
settlement.

Clinton can't have it all. If the tobacco companies are willing to
compensate states for their Medicaid costs, the federal government has a
right to be compensated for medical costs incurred by smokers under
Medicare, the Veterans Administration and other federal health programs. If
settling a lawsuit is the best way to get the companies to pay -- and to
drop their opposition to federal regulation of nicotine as a drug -- then
let's get on with it. But looking at tobacco as an endless source of
all-purpose revenue is a bad strategy for the long run.