Federal and State Regulation of Tobacco through Taxation

In 1994 the tobacco industry spent an estimated $4 billion on tobacco advertising. Even though cigarettes cannot be advertised on radio or television, they are the most heavily advertised product in the United States.

In the early 1990s, in an attempt to raise revenue for the federal government, bills were introduced in Congress to restrict the amount of advertising expenses that tobacco manufacturers could deduct from their gross income. In 1993 tobacco companies deducted an estimated $1 billion from their gross income for advertising expenses. The proposed bills would have used the extra revenue to fund education programs to stop underage smokers and to reduce the federal deficit. The bills did not become law, however.

States have long collected excise taxes on sales of cigarettes. As of 1995, Washington State imposed the highest excise tax, at 85 cents per pack, and Missouri had one of the lowest, at 17 cents per pack. Excise taxes were also imposed on chewing tobacco products. Studies completed in the 1980s demonstrated that as the price of chewing and smoking tobacco increases, consumption of those products decreases.

Federal Regulation of Tobacco as a Drug
In 1988 the surgeon general of the United States issued a report detailing the addictive effects of nicotine. Later scientific studies confirmed this finding. Despite this research the tobacco companies continued to deny that any relation existed between smoking and disease or that smoking was addictive. In an April 1994 congressional hearing on nicotine manipulation, the chief executive officers of seven tobacco companies testified under oath that they believed nicotine is not addictive and that smoking has not been shown to cause cancer. Later, however, some former tobacco company officials publicly confessed that cigarette manufacturers had long known about the health hazards of smoking and had deliberately concealed that information from the public. The first and perhaps best known of these officials was Jeffrey Wigand, the former head of research at Brown and Williamson, one of the large tobacco companies. Voluminous internal records showing that cigarette manufacturers were aware of the dangers of smoking, including the addictive properties of nicotine, were also leaked to the public. One paralegal at Brown and Williamson copied more than four thousand documents and provided them to tobacco opponents. An annotated compilation of those documents was published in 1996 under the title The Cigarette Papers. As a direct result of this growing body of information demonstrating that the manufacturers knew that nicotine in smoking and chewing tobacco can lead to addiction, the FDA in 1994 began examining whether nicotine qualified as a drug under the Food, Drug and Cosmetic Act (21 U.S.C.A. § 301 et seq.), and thus could be regulated as such by the FDA.

The FDA had formerly asserted jurisdiction over tobacco products only to the extent that they carried therapeutic claims. By 1996, however, the FDA had determined that cigarettes and other tobacco products are intended by their manufacturers to be delivery devices for nicotine, a drug resulting in significant pharmacological effects on the body, including addiction. Based on the Food, Drug and Cosmetic Act definition of a drug as an article "intended to affect the structure or any function of the body" and on the FDA's determination that the cigarette and smokeless tobacco manufacturers "intend" these effects, the FDA declared in August 1996 that it had jurisdiction to regulate tobacco products.

The FDA then announced that it would begin by regulating the sale and distribution of cigarettes and smokeless tobacco products to children and adolescents. The issue of children smoking has aroused widespread concern. Studies in the late 1980s and early 1990s demonstrated that despite state laws prohibiting the use of tobacco before the age of eighteen, children had easy access to tobacco products and many had become regular smokers before their eighteenth birthday. In 1996 the FDA estimated that 4.5 million children and adolescents in the United States smoke and that another 1 million children use smokeless tobacco. Accordingly, the FDA promulgated a proposed rule to reduce children's access to tobacco and limit its appeal to them. The proposed rule was published in August 1995, and the FDA invited public comment. The FDA received more than 700,000 pieces of mail on the proposed regulation, the most that any proposed regulation had ever received. After reviewing and analyzing the comments, the FDA published its final rule in August 1996 (21 CFR § 897).

The final FDA rule treated nicotine addiction as a pediatric disease because the use of tobacco products and the resulting nicotine addiction begin predominantly in children and adolescents. The FDA concluded that children do not fully understand the risks associated with consuming tobacco and that they are vulnerable to the sophisticated marketing techniques used by the tobacco industry.

Under the FDA rule, selling cigarettes or smokeless tobacco products to anyone under the age of eighteen is a federal violation. The rule also forbids the distribution of free samples of tobacco products and limits most retail sales to face-to-face situations by excluding most sales via vending machines and self-service displays. In addition, the rule limits tobacco advertising to black-and-white, text-only formats. Billboards and other forms of outdoor advertising are not allowed within a thousand feet of schools and public playgrounds. Sponsorship by tobacco companies of sporting and other events is limited to the corporate name only; the use of logos or mascots such as Joe Camel is forbidden. The rule also forbids the sale and distribution of nontobacco items that carry cigarette logos, such as T-shirts and hats.

The tobacco companies immediately challenged the FDA rule on several grounds, including whether the FDA has jurisdiction to regulate cigarettes as a "device" under the Food, Drug and Cosmetic Act and whether the rule violates advertisers' freedom of speech. In at least one case, a federal court restricted the scope of the FDA's jurisdiction. In Coyne Beahm v. FDA, 966 F. Supp. 1374 (M.D. N.C. 1997), tobacco companies and advertising agencies challenged the FDA's regulation of tobacco products. In April 1997 the district court ruled on the plaintiffs' motion for summary judgment, holding that the FDA could regulate the sale, distribution, and use of smoking and chewing tobacco, but not the advertising or promotion of tobacco products. Both parties planned to appeal the ruling.