Ellen Merlo Issues Talking Points to PM Usa Trade Council
Date: 11 Jan 1994
Length: 48 pages
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Length: 48 pages
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- R, J.G.
- SPCH, SPEECH, PRESENTATION
- Document File
- 2022811707/2022811756/Merlo Vendor Fet Cenf.
- Named Organization
- 21 Club
- American Cancer Society
- Amusement + Music Operators Assn
- Assist, Assist
- Citizens for Tax Justice
- Epa, Environmental Protection Agency
- Family Circle
- Hhs, Dept of Health and Human Services
- Mi Legislature
- Natl Assn of Mfg
- Nsa, Natl Smokers Alliance
- 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
- Kennedy, T.
- Merlo, E.
- DRFT, DRAFT
- Date Loaded
- 05 Jun 1998
- UCSF Legacy ID
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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.
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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
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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.
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[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.
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[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
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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.
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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.
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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
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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.
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[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.
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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
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(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
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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
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[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
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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.
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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
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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 ~
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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.
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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.
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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.
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* 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.
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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
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- 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.
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-- 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.
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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 O N ?V OC+ N ~ ~ Cj 25 25 N.
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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
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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 .
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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.
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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.
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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
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The Accommodation Proaram. ~ Successfu I model accom modation program in Pittsburgh. Elements of this program are now being implemented in cities throughout the country.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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."
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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.
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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]
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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
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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.
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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.
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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..
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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.
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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.
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Thank you. I'll be happy now to take your questions and to listen to your comments and suggestions. # # #