Tough Talk On Teen Smoking Imperils Tobacco Deal Industry Vows To Fight Any Changes To Proposed Settlement

Despite fierce industry opposition, the Clinton administration will demand that cigarette companies pay stiffer fines than the tobacco settlement proposes if smoking by teenagers does not drop, a top White House official said Friday.

The official, Bruce Reed, President Clinton’s chief domestic policy adviser, said in a telephone interview that a decision had been made to call for the tougher penalties if smoking by teenagers did not drop by specified targets over the next decade.

“We are going to strengthen the penalties,” Reed said, though he said no specifics had been decided.

Under the proposed settlement between the tobacco industry and state attorneys general, the annual penalties could be no more than $2 billion.

Reed’s remarks set the stage for a confrontation between industry and administration officials, whose support is deemed vital if the $368.5-billion settlement is to become law. The plan requires congressional approval.

Industry officials said any increase in penalties could imperil the agreement, which was reached in June to settle state suits to recover Medicare expenditures for people made ill by smoking.

J. Phil Carlton, a North Carolina lawyer who has represented the tobacco industry in talks with the White House, said that he told administration officials Thursday that the industry would fight any changes to the proposal.

“The penalties in the agreement were negotiated over a lengthy period of time and an agreement was reached,” he said.

The whole idea of such penalties is “irrational,” he said, because the industry should not be held responsible for youths who continue to smoke and added that “to take it any further is unacceptable.”

Over the past week, tobacco company representatives have fiercely lobbied White House officials, arguing, among other things, that the companies cannot afford any increase in the settlement’s cost. They have been particularly adamant about changes in the provision on youth smoking, contending that the $2 billion in potential annual fines is already Draconian.

Both Reed and Health and Human Services Secretary Donna Shalala, who are heading an administration task force reviewing the proposed settlement, have indicated that they believe that the penalties for youth smoking are inadequate. But Reed’s comments, coming as the task force finishes its work, were the clearest signal yet that the administration would demand stiffer fines.

“They hate the current scheme,” Reed said, referring to tobacco company officials. “And they are going to hate ours even more.”

Tobacco companies agreed in June to pay hundreds of billions of dollars to settle smoking-related lawsuits brought by states and individuals; to restrict marketing, like billboards with cartoon characters like Joe Camel; and to pay penalties if smoking by teenagers did not drop. In return, the companies would receive protection from some types of lawsuits and punitive damages.

Under the penalty part of the proposal, smoking by people 18 or younger must fall by 30 percent within five years, 50 percent within seven years and 60 percent within 10 years. For each percentage point that those targets are not met, tobacco companies will be required as a group to pay a $80 million fine, up to a maximum of $2 billion annually.

But companies could receive a rebate of 75 percent of that fine if they could demonstrate having made good-faith efforts to reduce youth smoking. In addition, any penalties they did pay would be tax-deductible, thus lowering a fine’s cost to a company by one-third.

Reed said administration officials were looking at several options to increase the penalties. They include increasing the fine for every percentage point that industry misses its goal, lifting the $2 billion annual penalty cap and eliminating the tax deduction.

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