Philip Morris
Ellen Merlo Issues Talking Points to PM Usa Trade Council
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- 2022811707/2022811756/Merlo Vendor Fet Cenf.
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- American Cancer Society
- Amusement + Music Operators Assn
- Assist, Assist
- Citizens for Tax Justice
- Congress
- Debartolo
- Ebony
- Epa, Environmental Protection Agency
- Family Circle
- Hhs, Dept of Health and Human Services
- Mccalls
- Mi Legislature
- Nacs
- Natl Assn of Mfg
- Nsa, Natl Smokers Alliance
- Palm
- Peat Marwick
- PM US Trade Council
- Price Waterhouse
- Pump Room
- RJR, R.J.Reynolds
- Ruths Chris Steak House
- Tassc, the Advancement of Sound Science Coalition
- TI, Tobacco Inst
- Tv Guide
- Named Person
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- Kennedy, T.
- Merlo, E.
- Synar
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draft. 1/11 /94. JGR Ellen Merlo issues
talking points to PM USA Trade Council
The Major Issues
The tobacco industry faces stepped-up
legislative activity on a number of fronts
in 1994 -- including issues s.uch as solid
waste disposal and fire-safe cigarettes.
But the three areas of most concern are:
[Overhead # 1 Excise tax increases,
smoking bans, marketing restrictions. J
excise tax increases
smoking bans
marketing restrictions.
Factors Driving the Issues.
[Overhead #2 EPA report on ETS.
Fiscal Pressure on States. Linkage of
tobacco with health care reform.]
(1) The EPA's January 1993 report
that put environmental tobacco smoke
on the EPA's "Group A" carcinogen list.
(2) Intense fiscal pressure on states
as a result of the recession and the
general "anti-tax" mood of the
electorate. Consumer excise taxes on
cigarettes are a way to raise revenue
fast with little political cost.
(3) Anti-smoking activists trying to
link taxes on cigarettes to health care.
2
3. 3.
STATUS REPORT ON THE THREE
MAJOR ISSUES.
Excise Taxes
[Overhead #3 Map of U.S. with state
tax rates.]
Currently, state excise taxes range from
a low of 2.5 cents a pack in Virginia, to a
high of 60 cents a pack in Hawaii (65
cents in Washington, D.C.) The total tax
bite on a pack of cigarettes (FET, state,
local and sales taxes) averages 31.3
percent of the price and -- in some
places -- exceeds 40 percent of the
price.
[Overhead #4 Map of U.S. with 1994
tax threats shaded. More brightly
shaded states where increases are
governor-driven.J.
Map shows states where we face the
potential for tax increases next year.
There are about 33 states where we
think there's a good chance for an
excise tax increase being proposed.
In the more brightly shaded states the
tax increase proposals are being driven
by the governors of those states. This
means a bill has a great deal of support
already in place and will be particularly
hard to defeat.
[Overhead #5 States with 1994 ballot
initiative threats, and with potential for
ballot initiatives]
Ballot referendums and ballot initiatives
can achieve the same anti-smoker ends
as bills passed in state legislatures.
In Michigan, a ballot initiative is
attempting to top an increase passed by
the legislature. The legislature enacted
a 15-cent increase. If the initiative is
approved in November, the tax will go
up by 50 cents.
In Ore . on a ballot initiative to hike the
state cigarette excise tax by 25-cents
and use the revenue for health care and
anti-tobacco programs has been filed for
the 1994 election.
5 5
I n Colorado and I nd iana, bal lot
i n itiatives to i ncrease taxes are also o n
the fast track.
In Arizona, Montana, and Nebraska
there's a potential for tax increases via
ballot initiatives.
Ballot initiatives and referendums are
particularly hard to defeat, because the
majority of non-smoking voters usually
support the tax increase.
7. 7.
Th e I m pact of Excise Tax I ncreases on
Business
When the tax goes up sharply, industry
loses volume and profits as many
smokers cut back or switch to discount
brands.
Retailers and wholesalers in high-tax
states take an especially hard hit, as
smokers begin buying their cigarettes
over state lines, on Indian reservations
or from sm ugglers to avoid the tax.
At federal level, even a 50 cent-per-
pack increase would lead to the loss of
more than 200,000 jobs in tobacco and
related industries nationwide including
tobacco distributors and retailers.
8.
Smoking Bans - the Second Major
Threat.
[Overhead #6 Excise tax increases,
smoking bans, marketing restrictions.]
If smokers can't smoke on the way to
wo rk, at wo rk, i n sto res, ban ks,
restaurants, malls and other public
places, they are going to smoke less. A
large percentage of them are going to
quit. Overall cigarette purchases will be
reduced and volume decline will
accelerate.
Here are the states where we expect
state-wide smoking bans or severe
restrictions to be introduced in 1994:
8 8
9.
[Overhead #7 Map highlighting states
where bans are expected to be
introduced in 1994]
Additionally, we expect tough smoking
ban or smoking restriction battles at the
local level -- towns, cities and counties --
in these states.
[Overhead #8 Map highlighting states
with localities where we expect ban
battles]
Finally, there are possibilities for
state or local ballot initiatives to ban or
restrict smoking in these states.
[Overhead #9 Map highlighting states
where there is a threat of local or state
ballot].
[Overhead #10 taxes, smoking bans,
MARKETING RESTRICTIONS].
Marketing Restrictions: the third major
th reat
Marketing restrictions can range from
local vending machine bans, to state
restrictions on self-service, all the way
up to Senator Ted Kennedy's regularly
introduced proposal to allow every state
to i m pose its own warn i ng labels and
advertising restrictions.
There are three potent forces at work
that are driving the proliferation of
marketina restriction proposals.
(1) THE SYNAR AMENDMENT
The Synar Amendment, voted into law
by Co ng ress i n 1992, ai m ed at
preventing children from purchasing and
using tobacco products.
We at Philip Morris agree with the law's
intent to:
(A) establish minimum age laws in the
states for the purchase of cigarettes;
(B) determine if retail establishments in
a state are in compliance with the
minimum age law; and
11 11
(C) have states file reports with the U.S.
Department of Health and Human
Services demonstrating the steps being
taken to enforce compliance.
Health and Human Services MUSCLE.
The Agency has the authority to grant or
withhold tens of millions of dollars in
federal mental health and substance
abuse funds depending on whether HHS
thinks that a state is or is not in
compliance with the Synar Amendment.
What constitutes compliance?
Anti-smoker blitz being aimed at HHS to
assure that "compliance" is defined to 0
N
include: ~'
~.
~
bans on vending machines IA
~
12 12
sam pl i ng bans
sting operations on retail locations by
local health groups armed with
u nderage teenagers and a video
camera.
licensing requirements for retailers who
sell cigarettes, with licensing fees
earmarked to finance additional sting
operations.
(2) PROJECT ASSIST: THE SECOND
POTENT FORCE AT WORK IN
MARKETING RESTRICTIONS.
Project ASSIST - Federal program
established in 1990 to reduce incidence
of smoking in 17 targeted states.
"ASSIST" stands for American Stop
Smoking Intervention Study.
13 13
[Overhead # 11 Map of the U. S. with
ASSIST states highlighted. Those
states are CO, IN, MA, ME, Ml, MN,
MO, NM, NC, NJ, NY, Rl, SC, VA, WA,
WV, Wi.].
$115 million over seven years, with an
additional $35 million being kicked in by
the American Cancer Society provided
to local and state anti-smoker groups to
create anti-smoker programs and to
create a Project ASSIST coalition of
anti-smoking groups in every Project
ASS I ST state.
IA
14 14
PROJECT ASSIST programs in the
works at present include tax initiatives
(Colorado), tax bills (Wisconsin and
Washington), smoking restrictions (all
coalition states), and marketing
restrictions (all coalition states).
(3) STATE EARMARKED TAX LAWS -
the third potent force in marketing
restrictions.
Typically passed through ballot
initiative, these laws tax cigarettes and
earmark the revenues for further anti-
smoking activities, including the
development of legislation to restrict our
marketing practices. Essentially, the
laws force smokers to pay for their own
harassment.
At present, California in the West with
Prop. 99 passed in 1989, and
Massachusetts in East with Question 1
,
passed i n 1992, are both fu nd i ng m u Iti-
million dollar anti-smoking programs
through state excise taxes on cigarettes.
These two states -- one on either coast
-- are incubators for anti-marketing
strateg ies. We expect the antis to
attempt to export successful programs
and tactics to other states.
[PAUSE]
"NOW FOR THE GOOD NEWS."
For each of our major issues, we have
strategies in place designed to insure
that our opponents are not successful.
16 16
STRATEGY -- FET
Philip Morris USA's legislative strategy
to combat a sharp federal tax increase is
three-pronged, with activities involving
government, business and the public.
Government
9 Working with the governors from
tobacco growing states and friendly
legislators in Congress to put pressure
on the Clinton administration.
A
~
Every tobacco-state governor has
called President Clinton personally to
explain the unfair economic burden their
states will suffer as a direct result of a
steep federal increase, and all are
continuing to send that message loud
and clear to Washington and the Clinton
Administration.
Ammunition includes geopolitical
studies conducted by think tanks or in
the academic milieu providing highly
accurate data on the job loss that can be
expected to occur in a particular
Congressional district if the tobacco tax.
is increased.
If you say to a politician, "Look, your
district is going to lose five thousand
jobs iff this tax goes through. Here are
the figures. That's five thousand
voters." It gets their attention right away.
And, through our database, we can
mobilize smokers who vote in a
particular congressperson's district, and
suggest to them that they might
effectively deliver just that kind of
argument.
Business
Coalitions with business and trade
organizations, as well as with consumer,
smoker and anti-tax groups to help
generate opposition that is broad, deep
and tightly coordinated. National
Association of Manufacturers, Citizens
for Tax J ustice and others are keepi ng
the heat on the Administration.
* We have mobilized the vendors who
supply Philip Morris with goods and
services through meetings in Richmond
and NYC. Not only have we sought the
support of the management of these
firms, we have asked them to mobilize
their suppliers and employees. Our aim
is to initiate a chain reaction that will be
experienced as a chorus of protest in
Washington.
The Public
National Smokers Alliance, or "NSA," --
a national organization of adult smokers
that promises to be a potent force in the
campaign to defend smokers rights,
including the right not to be unfairly
taxed. NSA membership may well
reach into millions in 1994, and will be a
powerful voice in the debate on taxing
consumers of one and only one product
-- tobacco -- to pay for health care
reform.
We're also using all communications
channels available to us to educate the
public and legislators to the positive,
dollars-and-cents contribution tobacco
makes to the U.S. economy and the
balance of trade.
22 22
- Using Corporate Affairs database of
about half a million activist adult
smokers to target messages to
particular legislators especially members
of committees where Health Care
package is being discussed.
-- Wo rki ng with o u r Co rpo rate Affai rs
counterparts at RJR who've made
available portions of their database so
that the two companies are able to send
out a single, uniform message to
consumers.
-- Working closely with The Tobacco
Institute and with TI lobbying efforts on
the Hill and at the state level.
-- Getting our message out to 100,000
PM employees in U.S. through PM
senior executives.
The Messaaes We are Deliverina.
Tobacco industry directly and indirectly
provides employment for 2.7 million
Americans, and generates nearly $70
billion in compensation annually.
About 275,000 ordinary people --
tobacco farmers, truck drivers, retail
clerks and so on -- might lose their jobs
as a direct result of the 75-cent FET
increase proposed by Clinton
Administration.
The tax is unfair. It targets one group
of consumers to pay for programs and
reforms designed to benefit the entire
population.
The tax is an undependable source of
fundin . Increasing the tax drives down
sales and thus shrinks the revenue base
from which the tax is obtained.
N
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OC+
N
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25 25 N.
The tax is inflationary. 2% of CPI is
determined by the price of tobacco
products. Increasing the cigarette tax
expected to increase the CPI. A whole
host of government entitlement and
safety net programs are indexed to the
CPI -- including Social Security --
government spending on those
programs would be driven up, creating
an increase in the federal deficit and in
inflation.
STRATEGY -- STATE TAXES
Our excise tax strategy for the states is
similar to FET strategy -- working with .N
coalitions to broaden opposition and get °
~
our message heard by state legislators ~
~
and governors. ~
~
26 26
Messa ecs :
State excise tax increases generate
less revenue than anticipated as high
taxes encourage people to quit using the
product or avoid the tax in other ways,
through cross-border purchasing,
purchasing at tax-free smoke shops on
Indian reservations, or even resorting to
purchasing bootleg cigarettes.
When the tax doesn't raise the
projected revenue, other taxes have to
be raised to take up the slack, and
legislators end up taking more heat from
vote rs .
Economic impact studies by third party
research groups such as Price
Waterhouse and Peat-Marwick
docu ment how states with h ig h tobacco
taxes lose substantial business to lower-
taxed border states. Lost sales are not
confined to cigarettes, but include
purchases of other goods and services
while the consumer is in the store.
Our batting average is good. Last
year, 38 state excise tax increases were
proposed, and only 7 actually passed.
STRATEGY -- SMOKING BANS
Dealing with the EPA. Smoking bans
being driven by the EPA report.
To attack EPA junk science, we are
part of a newly formed national coalition
-- TASSC -- stands for The
Advancement of Sound Science
Coalition -- that's educating the media,
the public and legislators to the dangers
of junk science. You will hear more
about this organization as the year goes
on.
Philip Morris and several other
members of the tobacco family have
filed suit against the EPA in a federal
court in North Carolina over the
procedures the EPA used that resulted
in ETS being put on the agency's Group
A carcinogen list.
Shifting the focus from ETS to indoor
air quality in general, showing potential
allies in business how they might be the
next victim of the EPA's shoddy science.
In doing so, we hope to discredit the
EPA and prevent smoking ban
legislation wherever it is proposed.
Also shifting the argument to
accommodation of both non-smokers
and smokers, and promote the adoption
of ventilation standards ensuring both
groups can be served. We are
developing model IAQ legislation and
targeting initial test states, including
California, Arizona and Georgia.
.Overhead #12 Accommodation
logo.J
The Accommodation Proaram.
~
Successfu I model accom modation
program in Pittsburgh. Elements of this
program are now being implemented in
cities throughout the country.
Program officially named, and
advertised, as "The Accommodation
Program." More than 8,000 participants
-- individual businesses and chain
organizations -- located in all 50 states.
More than 15 state restaurant
associations offering the program to
their members. In New York, the Palm
and the 21 Club are members. In
Chicago, the Pump Room is a member.
Nationally, the Ruth's Chris Steak
House chain. belongs as does the
DeBartolo chain of 71 mega-shopping
malls. At present, the program is
accommodating smokers and non
smokers in 37 of the DeBartolo malls.
The Accommodation Program is
positioned to potential members as part
of an organization's overall customer
service efforts which have direct,
bottom-line impact.
All of the benefits the program provides
its membership are free of charge. They
include an educational source book, a
customer service training video tape,
and free on-site signage including
window decals, table tents, counter
cards and plaques.
When we reach the mobilization phase
of The Accommodation Program, if
we've done our job right, we think we'll
have a very effective coalition of
hospitality industry businesses who will
be positioned to take action in defense
of accommodation.
Accommodation Leaislation. We began
promoting the adoption of
accommodation legislation in selected
states in 1993, and we will continue this
effort on a broader scale in 1994.
These laws attempt to strike a balance
by ensuring that reasonable steps are
taken to accommodate both non-
smokers and smokers in workplaces,
restaurants and other public places.
34 34
35. 35.
Many of these laws will also serve to
pre-empt local smoking restrictions,
which tend to be more severe.
[Overhead #13 States where
accommodation legislation is passed
('93) and planned ('94).]
The states in blue on this overhead are
states where accommodation legislation
has already been passed. For 1994,
we've targeted those states -- shaded
green -- where we have the best chance
of success.
In every state where we think it's
realistic to try, we will be pushing for
pre-emptive accommodation legislation.
Similarly, at the local level, we've been
able in two specific cases to help
accommodate travelers who smoke by
establishing smoking lounges in airports
-- in Atlanta and in Denver -- and to pre-
empt local smoking bans.
The Atlanta Airport is an especially
important foothold into the entire 1994
Summer Olympics, and is an ongoing
example of the strides a city can make
when city leaders recognize the
importance of accommodating all who
pass through.
37. 37.
STRATEGY -- FIGHTING MARKETING
RESTRICTIONS
Build coalitions with our customers and
with trade associations to lobby against
and defeat overly-restrictive measures
wherever they are proposed.
Antis focusing on town vending bans,
stadium advertising bans, county bans
on couponing, city bans on advertising
on city property or public transportation,
and so on. It is a Pac-Man approach,
gobbling up our ability to market a small
piece at a time.
Our counter strategy is to support the
passaae of state re ulations we can live
with that pre-empt any more extreme
attempts at marketing restrictions
offered up at the local level. And we're
doing just that.
At the federal level, we are battling the
antis on what constitutes enforcement of
the Synar Amendment. Minimum age of
purchase inspections does not mean, as
the antis are trying to propose, sending
children into an establishment to break
the law by buying cigarettes and being
videotaped for public relations as well as
prosecution purposes.
In addition to reacting to Project ASSIST
and to the HHS regulations on the Synar
Amendment, we also have an entire
array of proactive proarams that address
the youth smoking issue.
It's the Law" pro rg am," which we
developed in conjunction with NACS.
Retailer kit that includes lists of state
laws and penalties, tips on how to verify
the age of customers, attention-getting
window stickers and point-of-purchase
displays which announce the minimum
purchase age for cigarettes under the
headline, "ITS THE LAW."
New version of the program for the
Amusement and Music Operators
Association (AMOA), a trade association
that includes cigarette vending machine
owners.
"Helping Youth Say No" program run
by The Tobacco Institute, advertised in
national consumer magazines including
TV Guide, Family Circle, Ebony and
McCalls, and distributed free of charge.
"USE THESE BRAND NAMES ON
YOUR PRODUCTS AND WE'LL SEE
YOU IN COURT" Trade press
advertising campaign.
Finally, we take every opportunity to
inform the public of the strict industry
code regarding advertising and
promotion and that we endorse the letter
and beyond that, the spirit of the code.
[PAUSE]
42. 42.
RECAP
That's the major issues -- taxes,
smoking bans and marketing restrictions
-- and the factors driving them -- the
EPA report, the state economies, the
Synar bill and Project ASSIST, the
incubator states of California and
Massachusetts, the reversion by the
antis to a local Pac-Man strategy and
our counter-strategy of pre-emption.
And I've talked about what we're doing
in defense of the company and industry,
and some of the arguments we're
offering.
HERE'S HOW YOU CAN HELP.
Familiarize yourself with the issues and
then take personal action.that will
defend your own business interests.
42 42
Taxes
Write and call members of Congress.
Especially important if you have
personal connection with decision
maker.
Mobilize others -- your employees,
colleagues, suppliers and vendors. If
you need materials, we'll get them for
you.
Smoking bans
Join coalitions. Begin by joining, if you
haven't already, The Accommodation
Program. Join TASSC. Where bans
are proposed in your communities,
speak out against them, using economic
and business arguments.
Support accommodation legislation in
yo u r state.
45. 45.
You can also go after the sacred cow
of EPA science by writing letters to the
editor and to decision makers, pointing
out the flaws that are inherent in an
agency that makes policy decisions and
then cooks up the science after the fact
to support its decisions. Again, we can
provide you with the information if you
need it.
Marketing Restrictions
Fight them at the local level, and
support state preemption legislation.
If you're a retailer, join the It's the Law
program..
Defend your own First Amendment
rights to free commercial speech. Make
your case to local business groups and
to trade associations and mobilize those
groups to bring pressure to bear on
state legislatures.
On Ever Issue
Track these issues locally. Stay
informed of the progress of anti-smoking
legislation or activity in your area and let
us know if things are heating up. In this
way you can serve as a distant early
warning system that will alert us to the
need for action.
47. 47.
CONCLUDING REMARKS.
I've tried to give you an accurate and
unvarnished picture of the industry's true
situation regarding the current political
and legislative environment. I haven't
tried to pretty it up, and I haven't tried to
exaggerate it either.
The simple fact is we are at war, and we
currently face the most critical
challenges our industry has ever met.
We have to get together and join forces
to successfully defend our business right
now -- today.
Thank you. I'll be happy now to take
your questions and to listen to your
comments and suggestions.
# # #
