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Public HealtH] ~olicy Forum u Editorial: Profits of Doom Kenneth E Warner, PhD From a purely financial corporate perspective, cigarettes are a nearly ideal aonsuata pr+odttct. Consumption begins at an early age (half of all smokers start before age 14), and for many smokers, it never stops: the onset of niootute addic- tion occurs during the teenage years, and while four fifths of adult smokers would like to quit, ontyabout 2.5% succeed each year.1 The typical lifelong smoker smokes for approximately 50 years, consuming an average of more than 30 cigarettes per day. This translates into more than half a million cigarettes, for which, at today's prices, the consumer shells out roughly $50 000. The only drawback to the prod- uct, from the financial perspective, is its annoying tendency to kill so many of its consumers. An estimated 36% of lifelong heavy smokers die as a result of stttoking,2 each losing 2 decades of life eupectattcy? This deprives the tobacco industry of an additional 58000 per smoker. Two companies, Philip Morris and RJ. Reynolds, control' two thirds of the US cigarette market (in 1992, 41.4 and 26.6%, respectively).4 Accordingly, each can count on an avetage of at least $13 000 in lifetime revenue from a sizable propor- tion of the population, a total that exceeds the fondest dream of almost all other cor- porations. What makes this revenue espe- cially attractive, however, is the fact that the tobacco companies' profit margins 'rank at the 'top of American industry, av- eraging three to five times those of average corporations.5 To protect this extraordinary level of profitability, particularly in an increas- ingly hostile social environment, the cig- arette coinpanies have to work diligently. to maintain their favored position in Con- gress.6•7 Fortunately for the industry, they have plenty of'resources to devote to this task, and they sprcad those resources arautdhberally.Thetobaooo industry has few peers among interest groups when it comes to spending on campaign ootttrtbu- tions and lobbying, for example.7 As would be expected, industry po- litical expenditures also oocur at the state and local levdc, increasingly the locus of tobacco control acxivity.t3 It comes as quite a surprise, however, to learn the magnitude of those expenditures in the state of California, as discussed by Begay and colleagues9 in this Public Health Pol- icy Fonnn. According to them, the indus- try spent $7.6 million in that state in 1991- 1992, nearly a 10-fold increase over that spent in 19U_1986. The speaker of the California Assembly, the authors report, received an astonishing $221367 in 1991- 1992, maldng him the nation's single great- est recipient of industry political largesse. Thvee other legislative leaders received from $33 000 to $49 000 each. Only eight incumbents in the 120-seat California leg- islature did not receive tobacco industry eontnbutions. Does the phrase "buying influence" ring a bell here? Begay and his colleagues think so. While they marshall no definitive proof, the authors see a dear connection between the industry's exercising its eco- notnicmusde in the political arena and the reductions in spending on statewide to- bacco education that was mandated by the voter-passed 1988 initiative, Proposition 99. Proposition 99 raised the state rxga- rette excise tax by 25 cents per pack and earmarked resulting revenues for various The author is with the Department of Public Health Policy and Administration, School of Public Health, University of Michigan. Requests for reprints should be sent to Kenneth H. Wartter, PhD, Department of Pub- lic Health Policy and Administration, School of Public Health, University of Michigan. 1420, Washington Height.t, Ann Arbor, Mt 48109- 2029. 2023668'722 9. American Journal of Public l1balth t2711,

. • Put>fic Health Policy Forum purposes, including tobacco research and education. A landmark in the annals of tobacco control, the initiative passed de- spite a $21.2 million industry-sponsored campaign in opposition? In mid-1993 (as this is being written), arguably the most important lessons from Proposition 99 pertain to cigarette taxation and price. The first half of this year wit- nessed two independent, if not unrelated, developments that are of potentially his- toric proportions: (1) the Clinton admin- istration indicated that it was considering a large increase in the federal cigarette ex- cise tax-as much as $2 per padc-to help fund health care refonnt0; and (2) Philip Morris announced that itwas lowering the price of Marlboro, the nation's and world's top-selling cigarette, by 40 cents per pack. u Taxation is undoubtedly a powerful revenue generator and also a highly effec- tive smoking control policyt.t2; the Cali- fornia experience is consistentwith earlier evidence in this regard.'a Taxation may well be the most effective weapon with which to battle the eeonomic might and political influence of the tobacco industry. The major voluntary health associations have estimated that a $2 increase in the federal cigarette tax, tied thereafter to in- flation, would raise an additional $35 bil- lion in revenues annually while encourag- ing some 7 million Americans not to smoke. Eventually, close to 2 million pre- mature smoking-related deaths would be avoided as a result. t• Incidentally, a $2dax increase would merely bring the price of cigarettes in the United States up to inter- national standards for industrialized na- tions.ts Widespread public support for in- creased cigarette taxation, particularly as it is tied to health care reform, adds to its attratxion.t6 Yet despite the seemingly ir- resistible combination of public support and health and fiscal benefits, in the 2 dec- ades from 1972 to 1992, neither federal nor state cigarette excise tax rates kept pace with inflation. In 1972, and for at least the 2 preceding decades, federal and state ez- cise taxes constituted nearly half the av- erage retail price of cigarettes. In 1992, however, taxes accounted foriess than a quarter of the retail price, the lowest per- centage on recordaz The declining tax.share of the retail price of cigarettes not •only resulted from the failure of taxes to keep pace with in- flation; it alfio reflects thc facrthat whole- salcpricas have incrcased much more rap- idly than thcgeneral ratc of inflation. Over thc past 2 dLcadcs, conrurnar prices rose I'_1_'. ,lnuric.m Jtnunat of.P(Jl+lJc I lcahlt a factor of fourwhereas cigarette prices Jwithout taxes) increased sevenfold. Enter the Philip Morris decision to cut the price of Marlboro, the first signif-icant price reduction in premium-brand cigarettes in decades. Ostensibly, the company's motivation was a fear of losing market share to the lower-priced generic and discounted brand cigarettes, although industry analysts have suggested other motives.4 Tlte generics and discounted brands haveocrtainly beengaining market share with a breathtaking rapidity in re- cent years; they now aooount for close to 40% of the market, up from 11% as re- cently as 1988!.i1 The Marlboro price cut could have far-reaching implications for both the in- dustry and the nation's health. Until now, this highly concentrated industry has kept cigarette prices well above those that would have prevailed in a more competi- tive market. In turn, high prices have lim- ited consumption. The Marlboro price de- dine, sure to be mimicked throughout the industry,4 will expand the market. More people will smoke and more will die. In- cidentally, the companies' profit margins will fall significantly as well.• Government has the power to re- vetse the expected increases in smoking simply by increasing excise taxes. If a S2 increase in the federal tax made sense be- fore Philip Morris announced its new pric- ing policy, a $2.40 increase is justified to- day, simply to compensate for the Marlboro price cut. A major tax increase could reverse the damage to the public's health that has resulted from the growing influence of the discounted cigarettes. (In 1992, as the generics and discount brands captured increasing market share, per capita cigarette consumption failed to de- crease for the first time in 20 years.t') 'Ihe industry, of course, has mounted an aggressive, deceptive, and well-fi- nanced campaign in opposition to the pro- posed tax increase. As in California, fed- eral legislators are receiving an earful from tobacco lobbyists. * Industry public -rela- tions specialists are churning out press re- leases bemoaning the fate of thousands of farmers who will lose their jobs and' cx-. pressing the industry's heartfelt concern for the downtrodden poor smoker who will bpar,a disproportionate burden of any new tax. But lest anyonc view these ex- pressions of sympathy as other than croc- odile tears, consider the dcafening silence of this same industry as it systematically raised wholesale prices for 2 decades. Thnt hurt poar snuokurs and reduced farni employment in precisely the same mat as would a tax increase. A large tax increase will farmers the'tr jobs as smoking the numbers are far smaller, and sition much more gradual, than ind estimates indicate.'s And while tob: state farmers will lose jobs, otherm gain employment elsewhere thnxtl the country, in roughly comparable bers, as money previously spent o. bacco is redirected to other goods services,ts By virtue of their higher sm pt+evalenoe (and, of oourse, thttir loa comes), the poor at+e indeed hloely tic a more substantial finattcialbtmdea fn increased tax unless, as is ptustbk, are so reespottsive to higher ptitxs dta. quit smoking ptoporhonately aare rthan price rises.19 The impact on smokers certainlywarrants attention development of a tax policy padcag While the relative financial burd. the poor is uncertain, the health imi tion is not: the poor will benefit di portionately because farmore low-in people wt71 end up rejecting smoki the price of cigarettes rises.1•19 All i icans will share, with the poor, antici reductions in health care eosts, '--' those accruing to Medicaid a~ . care.m This brings us back to heaith ca form. There is a nice ooneeptttal i tween taxing tobacco and restruc health care delivery and finance. Bt important to recognize that a subs, increase in cigarette taxation would ~ tute significant "health care reform- itself; regardless of the fate of pr, changes in our health care delivery s It would' produce a public health a. ment with few precedents while n the nation's health care bill in the p.. It would also raise tetts of billions of in needed governmental revenues. Thus, the Clinton adminis would be well advised to turn a ti to the cynical prophets of doom w: dle their deadly product with disrc. not contempt, for the welfare of tht tomers. 0 References 1. Reducing the Health Conseque S++rol i,rg. 25 Years of Pmgrcss. ~ of rhe Srrrgeorr General. Washing US Dept of Health and Human ` Centcrs for Disease Control; l publication CDC 89-8411. 2. MattsonME, PollackfS,Culleni are tlie cxlds ahat~smokingwilllkih J Rublrc l l ivildh. 19S7; 77`. 425--0~ I Sclnrinl~ar ~'KI;, V~~i '

I'ubtic Hcaltli l'oliq Forum 3-Warncr KE. Effects of the antismoking 9. Begay ME, Traynor M, Glant2 SA. The Coalition on Smoking OR Health; January campaign: an update. Am JPRibfic Health. tobacco industry, state poiitics, and' to- 1993. 1989;79:144-151. baccoGducation in Catifornia.AmJPublu 15. Sweanor D. "Time for a change" in US 4. Kale W. Philip Morris' war cry called dan- Health. 1993;83 :1214-1221. tobaccotaxpolicy.ToliaccoCoatrnL 1993; gerous move. Riclimond'(Va:) Tunes-Dis- 10_ Koretz G. Add ;2 to the cost of a pack of 2:1-2. patch. April 6, 1993:B7,B12. cigarettes. Business Week March 15, 1993: 16. The Public's Attrtudes toward Cigarette 5. WhiteLC.MerrhantsofDeath: TJicA.rner- 18. Advertiring and Cigarette Tax Increase ican Tobacco Industry. New York, NY: 11. Shapiro E. Price cut on Marlboro upsets Princcton, NJ: Gallup Organization, Inc; Beectt Tree Books; 1988. rosy notions about tobacco profits. Wa/I April 1993. 6. Taylor P. 77te Smoke Ring: Tobacco, Street JanrraL April 5, 1993:A1,A10. 17. Shapiro E. Trend toward quitting smok- Money, and Multinatibnal Politicx New 12. The Tax Burden on Tobacco-H'crtorical ing slows as discount cigarettes gain popu- York, NY: Pantheon Books; 1984: Compilation, Volume 27, 1992 Washing- larity. WaUSvarlaownaL Apn11,1993:81. 7. Wolfe S, Douglas C, Wilbur P, et al. 7he ton, DC: Tobacco Institute; 1993. 18. Warner KE. Health and economic impli- Cangra:csionalAddiction to Tobacco: How 13. Flewelling RL, Kenney E, E1derJP, Pierce cations of a tobacco-free society. JAMA. the Tobacco Lobby Suffocates Federal J, Johnson M, Bal DG. Fitst year impact of 1987;258:2080-2086: Health Policy. Washington, DC: Public the 1989 California cigaratte tax increase on 19. Townsend J. Cigarette tax, economic wel- Citizett's Health Research Group and the cigarette consumption. Am J Public fare and social class patterns of smoking. Advocacy Institute; October 1992. Healtlc 1992;82:867-569. Applied'F,conontics 1987;19•355-365. 8. Samuels B, Glantz SA. The politics of local 14. Saving Lives and Raising Revenuc 7he 20. Hodgson TA. Cigarette smoking and life- tobacco control. JAMA. 1991;266:2110- Case for Major Increases in State and time medical expenditures. M'rlbank Q. 2117. Federal Tobacco Taxes. Washington, DC: 1992;70:81-125. , Subm.issions Invited for Public Health Policy Forum The Journal departtnent "Public Health Policy Form" is intended to present divergent views on important public health policy issues in a more extensive fotmat than the Journal usually allows. Three hittds of material appear in the Forum: articles, not exceeding 4500 wortis; commentaries, not exceeding 2500 words; and editorials. Customarily, commentaries and editorials are solicited by the Jotnnal's Contributing Editor or Editor. Artides for the Forum are selected from those submitted'generally to the Journal or specifically to the Forum. In general, peer review is sought. Those wishing to submit articf es directiy to the Public Health Poliry Fortun should send them to the Journal office as follows: George A. Silver, MD, MPH Contributing Editor, AJPH Public Health Policy Forum 1015 Fifteenth Street, NW Washington, DC 20005 Please send five copies of the manuscript and follow the Journal's guidelines, "WhatAJPH Authors Should Know," printed in each issue of the Journal. The scholarly merit and the scientific accuracy of all submissions are considered. Additional criteria are relevanee to an important policy issue, timeliness, and clarity and coherence of the policy argument. Brevity also helps considerably. SrptcmlVr 1993. Vol. 83. No. 9 American lournal of Public t-tealth 1213