Pubdate:  Wed, 10 Sep 1997
Source: Reuter

Two Senators fight tax deduction for tobacco deal

            By Joanne Kenen
            WASHINGTON (Reuter)  A conservative Republican and a
liberal Democrat teamed up in the Senate Tuesday to try to
prevent tobacco companies from deducting from their taxes
billions of dollars of payments they would have to make under
the proposed tobacco settlement.
            As the national settlement proposal is currently drafted,
tobacco companies would be able to write off a large part of the
$368.5 billion in payments, reducing their true cost by about a
third.
            Florida Republican Connie Mack and Iowa Democrat Tom Harkin
said they would introduce legislation to cancel out the tax
break, worth roughly $100 billion over 25 years, and direct the
money to the National Institutes of Health.
            ``I was stunned that there was virtually no mention of those
funds going into research,'' said Mack.
            Instead of shifting the cost of part of the settlement to
taxpayers, Mack said, he wants the tobacco industry payments to
help finance the search for cures for cancer, emphysema, heart
disease and other deadly ailments linked to smoking.
            Separately, Sen. Richard Durbin, an Illinois Democrat, is
leading an effort to repeal a separate break for cigarette
makers that was inserted in the tax bill passed in July, when
Congress approved new taxes on cigarettes to pay for children's
health care.
            That provision, littlenoticed at the time but now a
lightning rod for controversy over tobacco's influence in
Congress, would let the companies credit about $50 billion
against any national tobacco settlement ultimately approved by
Congress.
            With Mack and other Republicans backing it, Durbin's
initiative seems likely to pass the Senate, although its fate is
less certain in the House. A Senate vote could come Tuesday or
Wednesday.
            President Clinton is expected to give his views next week on
the proposal, negotiated by the tobacco companies and state
attorneys general suing them. But Congress is unlikely to enact
the settlement proposal this year.

            Mack and Harkin said their intention was not to scuttle the
tobacco deal. But they acknowledged that making the settlement
more onerous may cause the industry to walk away from the deal
and take its chances fighting the state cases in court one by
one.
            ``That's a decision that frankly they're going to have to
make,'' said Mack.
            According to an aide to Mack, the two Senators will push for
their legislation even if the national settlement package bogs
down because under current law the tobacco companies can still
deduct part of the payments they have committed to make under
outofcourt settlements with Florida and Mississippi.
            Further state settlements are possible as trial dates near
in the other states that are suing the industry.
            The national settlement proposal arose from an effort to
settle some 40 state suits, as well as a number of large
classaction cases that have been filed against the industry.
            Other lawmakers have also suggested ways of steering more
tobacco money into federal coffers. Sen. Edward Kennedy of
Massachusetts, for instance, wants to double the settlement size
to repay Medicare and veterans programs for the billions they
have spent on tobaccorelated illness over the years.