Tobacco Documents Online

10 PHILIP MORRIS MAGAZINE/SUMMER 1985 At left and center, the un- packing and installation of the Vatican trea- sures. Stuart Silver's design for the galleries (bottom) incor- porated Roman- style arches and earthy colors. Facing page: The Rest on the Flight Into Egypt (ca. 1570-1573) by Barocci. statue like the Apollo Belvedere on its feet. Neither out-of-town museum had a rigging crew, so Morsches lost his men each time the exhibit had to be reinstalled. He and his staff made two pre- liminary trips to each city, mea- suring corridors and elevators to guard against potential disasters. Also in the operations domain were the carpenters who built the cabinets and pedestals, metal- smiths who made every picture hook, and painters who not only decorated the galleries but nightly touched up every smudge or fingerprint left by the huge crowds. The signs to the rest- rooms, outdoor awnings and banners, 185,000 light bulbs, printing and mailing, purchasing, and training of guards were all the responsibility of Morsches and his able managers, who supervise 750 of the museum's 1,600 employees. Morsches, a 21-year Met veteran, compares his job to running an army. Then he grins and admits, "It's fun. No two days are alike." One particularly sensitive province belongs to Kathleen Arffmann, director of admissions. Each time a show is planned, estimates are made as to how many people can visit the galleries comfortably at one time, and how long it will take them to walk through the exhibit. Arffmann issues tickets accordingly. Then a major part of her job is to train the temporary assistants hired to handle busy phones, staff desks, and say no tactfully to disap- pointed callers. There were many of the latter for the Vatican show, especially on weekends, when 20,000 re- quests were common for 5,500 places. An important show brings an average of 37 calls per min- ute, and most want personal attention after they hear a record- ed message. Nine special lines are needed for a typical big exhibit. Was it worth it? Almost every- one at the Metropolitan, remem- bering the final triumph of the ex- hibit, says yes-but they say it on the run. After all, major exhibits are what a great museum is all about. And though the Vatican show was a landmark, that was yesterday. Tomorrow it will be another show, and there are still cases to build, planes to meet, crates to unpack, lectures to be given-and all those phones to answer. 0 Eleanor Berman is the author of the Away for the Weekend guides (Clarkson N. Potter). i

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® ® ® © ® L111111 ® ® ® ® r=r-# _t 4 1 W i s~.w.-1 ® D 0 10 ti Ll i l i A #h ~ 3.. _ Courtesy of John Burgee Architects with Philip Johnson N O -p O W U1 ~ ! ~ CO ' } t ~i Scenes of 42nd Street today against a backdrop of plans for its future (clockwise from left): ornate grillworK in the outer lobby of the Chanin Building; rush-hour traffic; a detail of Grand Central Terminal; an artist's rendering of the office towers pro- posed for Times Square•

One of America's most famous thoroughfares is about to get a facelift. Courtesy of John Burgee Architects with Philip Johnson ~ BY PHIL PATTON Nothing in recent years has done more for the reputation of New York's 42nd Street than the musical of the same name. But the show gets one thing wrong: the song about dancing feet refers to the "avenue they're taking us to'." That's fine for rhyme-it may be allowed as poetic license- but it completely misses the point. Because 42nd Street is definitely not anything as highfalutin' as an avenue-it's a plain old street-wise street that's worked its way up. Its appeal lies in the fact that it cuts across the avenues, from the gritty to the grand. The street is literally as wide as Manhattan, stretching from the East River to the Hudson, and it's a cross section of the whole island, a core sample of all its varied strata, from polished marble to rough brownstone. Today, 42nd Street also offers a microcosm of the debate over strategies pro- posed for a better urban future. Recent improvements have provided hope for an end to 42nd Street's persistent problems and a reaffirmation of its traditional worth. Glis- tening new buildings, from the Grand Hyatt and Harley hotels to the dignified Philip Morris and (newly reclad) Home Box Office headquar- ters, now rub elbows with monuments of the skyscraper era. And a pending Times Square renewal plan is about to contribute the most dra- matic change ever in a street that has seen many changes. That scheme, directed by New York State's Urban De- velopment Corporation, in- cludes plans to build a series of towers, designed by such architects as Philip Johnson and John Burgee, that will range up to 56 stories tall and include office, retail, and hotel space. Plans for the restoration to theatrical use of nine once- grand theaters between Se- venth and Eighth Avenues are also part of the project. The price tag for the whole regener- ation approaches $2 billion. Theater helped build 42nd Street. As New York City grew, it moved north from its water- front origins; 42nd Street was a frontier, the edge of uptown, when a few daring theater own- ers, beginning with Charles Frohman (in 1893) and Oscar Hammerstein (in 1895) lo- cated there. Swanky restau- rants, watering holes, and hotels soon followed. Before that, 42nd Street had been considered a wilderness. When Grand Central Depot went up in 1871, on the same site of the current incarnation, in the direction of either river- RM u~fllft aa..~r~~c~i •...: ,~ L sira ~ :H ~ ~ fiiTa:L'X . i.n ..GL"IL~et  .a~~~3... ud.:~;..u rskFE:.1.u. 12 .... ;.E..~~.... :Ci G?€ a~tEvW :` a~3l16d~:~[ ; 'n1.ILA YWWl1.'( aYYWYYYu Fam 6 0 ~ 4 ® l EQ Q Is I [A 0 0 ® M 0 © ME a ~ at~._ - ` tiffi.1'll ".---1- .::.. ", front were only tenements, gasworks, rail yards, and what were then regularly referred to as "dens of hooliganism;" sup- porting their own cast of "French ladies" This was New York's own tenderloin. There were, to be sure, new buildings uptown around Central Park, but they retained an almost sub- urban air through the 1880s. To the west, 42nd Street ran through the heart of what was called "Hell's Kitchen;" home of freight yards, stock pens, and tenements, and an area that had been home to gang wars since the Civil War. It was often the site of thievery and strong-arm tactics aimed at the freight industry, and of fights for turf between gangs with colorful-now quaint-names: the original "Hell's Kitchen Gang;" the "Hudson Dusters;" the "Gophers." The wars be- tween the hoodlums were not stopped until the early years of the present century, when the New York Central Railroad

. ae ~~ ~ m~ ~ ~~ ~ ~~1.0 ~: ~i~.aa~ . the Ford Founda- tiori s indoor garden (above), inside the Automat (below). used its own gang of toughs to break the hold on the then- dominant Gophers. The famous priest, Father Francis Duffy, who is honored today by a statue in Times Square, earned his reputa- tion as a sort of missionary to these wild tribes, an almost storybook figure blending tough- ness and kindness. Duffy, who was also the chaplain of the famed 69th Regiment (raised mostly from the Hell's Kitchen area), was pastor of the Church of the Holy Cross, on 42nd between Eighth d Ni th A m an n venues. ~ It was the presence of Grand Central Terminal that led, indi- rectly, to the birth of the modern 42nd Street. The city's first sub- way line-previous rail lines had been trolleys or "els"-was the IRT, running from City Hall to Grand Central, then west along 42nd Street before turning up Broadway. This transit innova- tion helped Adolph Ochs of The New York Times decide to locate his paper's new building at the subway juncture. The paper moved into its terra-cotta sheathed tower on New Year's Eve 1904. (The celebration, complete with fireworks, marked the beginning of an annual New Year's cere- mony.) Before long, Ochs had persuaded the city to formally name the square-actually a set of triangles-at 42nd and Broad- way "Times Square" Over the years the building itself has changed much, becoming One Times Square after the paper's of- fices moved to 43rd Street and then, in 1966, the Allied Chemi- cal Tower (shortly thereafter it was fitted with a new, modern, marble skin). Times Square became a place of legend less through plays and shows than through another form of theater-outdoor advertising 0 I I M !I- 0 t U ® hotel buildings that make up the Times Square Center. and the drama of its enormous billboards. Even Broadway's nickname-"the Great White Way"-was invented by an advertising man, O. J. Gude, an early champion of the electric sign. The signs are specifically pro- tected by the 1916 Zoning Act. Times Square has been a na- tional as well as municipal stage. In how many minds is the end of World War II represented by the lingering memory of Alfred Eisen- stadt's famous photograph of a sailor kissing a nurse? Currently there is concern that the plans for rehabilitating Times Square might endanger this public role. In particular, several citizens and arts groups have criticized the proposal to remove the old Times Tower. After the plans to raze the tower were announced, New York's Municipal Art Society sponsored a competition to suggest ways the building could be saved and the uses to which it could be put. Almost all the pro- posals featured some form of giant television screens, to am- plify and expand the building's place as the greatest sign among a forest of supersigns. As varied as the denizens of 42nd Street's sidewalks are the personalities of the buildings that rise above them. A walking tour of the street's great skyscrapers should start at its eastern extreme, where 42nd Street seems to begin in the most universal way possi- ble, with the headquarters of the United Nations. But the original design of the UN complex (by an international committee of architects headed by New Yorker Wallace K. Harrison) inspired as much bickering as occurs at the Security Council. The basic plan, by Le Corbusier, somehow man- aged to retain its formal power through all the adjustments and modifications. The UN's neighbor, the huge Tudor City apartment complex, turns in on its courtyards, entirely understandable since it once was surrounded solely by warehouses, tenements, and slaughterhouses (six acres of the latter were razed to make way for the UN). The Ford Foundation headquarters sits just across the street from Tudor City, and its atrium echoes the residential complex's park and courts. Designed by the architec- tural firm of Kevin Roche and John Dinkeloo, the Ford Founda- tion building represents what is best about the often-maligned urban architecture of the 1960s: its shapes are powerful, but humane, concrete and steel beams softened by weathered surfaces of Cor-ten steel. But its most attrac- tive feature is the interior garden, which is as much a gift to the street as to the floors of offices tiered around it. Farther along, a trio of sky- scrapers-the nearby Daily News Building, the original McGraw- Hill Building far to the west, and the American Radiator Building just about in the middle (behind the Public Library)-make 42nd Street a showcase for the work of one of America's greatest architects, Raymond Hood. Hood, along with John Mead Howells, won the famous Chicago Tribune Tower competition that did so much to define skyscraper architecture. His American Radia- tor Building, (actually on 40th Street but best seen from 42nd across from Bryant Park) is a miniature black-and-gold version of the Tribune Tower, a Gothic cathedral of business. The Daily News Building, completed in 1930, is distin- guished for having broken away from the rigidity of setbacks 2040235200 1 A Above, drawings detail the office, retail, and \\1v\~\~,\l. 'r :"3c~: ~ 0 ~ s1 A ~, asr• \~ 0

r (dictated under the 1916 zoning laws) to create a solid shape that left much of the site free. In this, as in the dramatic contrast of its dark and light bands of siding, it set a precedent. It also expressed a certain vision of the 1930s city, the Metropolis of the "Superman" strips. The comic strip's Daily Planet was modeled on the Daily News, and the incestuous relation- ship came full circle when the Daily News Building was actually used in the "Superman" films as Daily Planet headquarters. By way of the Daily News Building, Hood moved from the delicate detail of the Radiator Building to the stripped-down McGraw-Hill Building, conclud- ing in the process that "this beau- ty stuff is all bunk" But McGraw- Hill-built far to the west (330 W. 42nd St.) because of zoning requirements for the firm's presses-is beautiful nonetheless. With its ocean-liner-like top stories and green terra-cotta paneling, it suggests some great conning tower or superstructure; a captain's bridge from which the whole island of Manhattan might be steered. From the sidewalks of 42nd Street, one could easily miss its greatest skyscraper, the Chrysler Building. It is so tall and dramatic -especially at night, with its arc of V-shaped lights installed a cou- ple of years ago-that it needs to be seen from a distance. A pedestrian in too much of a hurry is also likely to neglect other, less-famous skyscrapers, many of whose upper reaches have been blocked from easy view by later development. For ex- ample, the Chanin Building (122 E. 42nd St.) has wonderful art deco work. And, although the ski- jump form of the Grace Building, near Sixth Avenue, has been criti- cized as too showy, it is not hard to muster a bit of fondness for its dramatics. In a few years, we are likely to appreciate the sculp- tural melodrama of such build- ings, just as-half a century after their construction-we appreci- ate the ornamental melodrama of art deco. The grand aspirations of 42nd Street's towers can grow wearing. But scattered among them, for- tunately, are a few places of refuge that permit quiet observation. Moving back across town to East 42nd Street, a tour of these spots should start at Grand Cen- tral Terminal, whose admirers recently defeated a threatened plan to develop an office tower above its columns. This building offers public space in the grand tradition, serving as a kind of living room for 42nd Street and an appropriate gateway to the city. The Automat, on the southeast corner of Third Avenue, is the last of its kind: an art deco styled re- minder (it was actually built in 1958) of the days when a cup of coffee cost 5q. At the other end of the culinary scale, The Sun Garden Lounge, a restaurant-bar at the new Grand Hyatt hotel, is cantilevered out over the street next to Grand Central, providing a perfect vantage point for regarding the traffic rush. The Whitney Museum has a branch in the lobby of Ulrich Franzen's Philip Morris Building just up the block. With its open court and espresso bar, this space is an oasis from the frantic pace of the street. Designed with the assistance of William Whyte, an expert on small urban spaces, it is one of the most humane spots along 42nd Street. Moving across Fifth Avenue, the Public Library, designed at the turn of the century by Carrere and Hastings, mixes grand spaces with the smaller ones of its spe- cial collections. The library has recently installed a computerized card catalogue system, and the terminals-with their green glow-sit in odd juxtaposition to the dramatic ceilings and acres of bookshelves. Bryant Park, behind the Public Library, has so far been unsuccess- ful in its attempt to function as 42nd Street's belt buckle of greenery. Once the site of the city's drinking water reservoir, it has never quite lived up to its promise as a park. New plans call for its restoration and the addi- tion of a glassed-in, 1,000-seat restaurant, backed up to the great beaux arts library. The history of 42nd Street is the history of New York theater and, moving west, the street itself is a linear stage, as much for the street performers-the break- dancers or mimes at the corner of Sixth Avenue-as for the aspiring stars living in Manhattan Plaza, the subsidized housing complex constructed for those in the performing arts. In the redeveloped area be- tween Ninth and Tenth Avenues, are six theaters, and in what was once the West Side Airlines Terminal, video and film facilities thrive. Even the entrances to the Lincoln Tunnel have been given a touch of theater: trompe l'oeil murals by painter Richard Haas suggest fanciful stage backdrops. Critics worry about the new towers in Times Square-will they turn Times Square into just another part of midtown office- dom, an imitation of Rockefeller Center? Can they coexist with billboards and glitzy signs? And with Broadway's economy in a crunch, will the area be able to support nine new theaters? Can 42nd Street lose its rougher edges without losing its spirit? No one knows for sure, but at least the debate is finally being joined on a solid premise: the best hope for achieving a happy medium between the old, often coarse-but undeniably human- elements of the street and slick new development lies in the fact that we have begun to view 42nd Street not just as part of Times Square, not just as a connector of grand avenues, but as a land- scape and legend in itself. 11 Phil Patton is a Brooklyn-based writer interested in architecture and design. The McGraw-Hill Building. Trompe 1'oeil murals near the Lincoln Tunnel entrance. listening new buildings now rub elbows with monuments of the skyscraper era. Plans to revitalize Bryant Park include reland- scaping (above) to encourage new uses (below).

PM NOT COMMUNITIES ACT S eattle's colorful Pike Place Market sits on a steep hill above Elliott Bay, a remnant of the city's past that has recently become a catalyst for its future. Just 20 years ago the turn-of-the-century market, now filled with farmer's stalls, restaurants; and shops, was scheduled for the wrecker's ball. The fact that it has survived-and prospered- since then is a tribute to a phenomenon that is quintes- sentially American: ordinary citizens acting together to preserve and utilize their shared environment. Commu- nity action has a long history in this country, and the story of the Pike Place Market is a shining example of how it can work. The market was founded in 1907, when Seattle's rapid Saving a Piece of Seattle's Past ~ growth and status ~ as the gateway to oa the Yukon had ~ created a demand ° 2 for inexpensive 3 produce. Other food shops sprang m up nearby, and by the 1930s there were as many as 600 farmers rent- ing stalls there each day to sell their fruits and vegetables. But World War II brought disaster: almost half the farmers were of Japanese descent, and their intern- ment decimated the market. After the war, changing life-styles-migra- tion to the sub- urbs, the advent of supermarkets and of frozen foods-contrib- uted to the mar- ket's continued decline. By 1963 the run-down buildings that made up Pike Place Market were slated for demolition and replacement by a parking lot and assorted high-rise buildings. That was when some mem- bers of the community de- cided to take action. The late Victor Steinbrueck, then a professor of architecture at the University of Washington, denounced the city's proposal as a "major catastrophe:' A community group, Friends of the Market, was formed in the summer of 1964. Battle lines were drawn. For the next seven years the Friends and other groups worked to educate fellow citizens and to oppose the city's plans for redevelopment. They staged fund-raising events, such as auctions, tours, and parties, and collected more than 50,000 signatures 16 PHILIP iv1ORRIS MAGAZINE/SUMMER 1985 on a "Let's Keep the Market" petition to present to Seattle's City Council. Despite these efforts, the City Council voted against the preservationists but fate intervened: federal funds for urban renewal were frozen, giving the Friends time to have the market area declared a historic district. The Friends faced defeat again in the spring of 1971, when federal grant money was awarded for the city's rede- velopment project; they countered by gathering the signatures needed to put the issue to a vote. As election day neared, national attention focused on Seattle: The New York Times, Newsweek, and Harper's were among the publications that covered the controversy. "You can't fight progress. Or can you? Seattle has just enough of the old The bounty of Seattle's Pike Place Market- from produce to parking lot-dazzles the eye. frontier spunk to try," wrote Donald Aspinwall Allan in Gourmet. In November 1971 the citizens of Seattle voted 76,369 to 53,264 to preserve the market. Community involvement didn't end with this victory. A nonprofit agency was formed to oversee the market's restora- tion, and today-almost 14 years after the saving ballots were cast-it is a vibrant part of the city's center. Virginia Felton, administrative director of the Pike Place Market Preservation and Develop- ment Authority (which con- tinues to manage the market), says that Pike Place has been "a catalyst for redevelopment" in adjacent neighborhoods. The market now provides affordable space for Seattle's farmers, craftsmen, and small entrepreneurs, employing some 2,000 people and attract- ing 25,000 visitors each day. Food has always been the soul of Pike Place Market; Felton says that "80 percent of the revenues come from the food stalls and restaurants" About 80 farmers rent day- stall spaces, among them a new wave of Indo-Chinese immigrants (from Vietnam, China, Cambodia, and Tibet). Food consultant, columnist, and cookbook author Barbara Kafka recently visited the market and noted in an article in Vogue that, like past waves of immigrants, they have brought with them "the ingredients necessary for their own food. Tiny white-green bok choy with flourishes of dark-green, ruffled leaves and aromatic chrysanthemum leaves for sushi flirt with next-door bunches of basil and rosemary." Kafka concluded that "this nontourist market is the best possible kind of urban renewal, founded on a solid link with the past." And, she might have added, firmly rooted in the hearts of Seattle's citizens. p

olvement victory. A as formed et's restora- almost 14 ing ballots ibrant part r. Virginia ve director e Market Develop- hich con- e market), e has been elopment" orhoods. provides r Seattle's and small mploying snd attract- each day. 3 been the e Market; percent of from the ;taurants:' rent day- g them a -Chinese Vietnam, d Tibet). lumnist, r Barbara Psited the an article ast waves ey have m "the for their ite-green ishes of aves and hemum irt with basil and ncluded arket is of urban a solid d, she firmly Seattle's 13 STUDY FINDS SMOKERS MORE PRODUCTIVE A Minnesota study of 55 bank executives found that those who smoke are slightly more productive than their counterparts who don't. Ac- cording to Tor Dahl, a health economist at the University of Minnesota, smokers were found to utilize their produc- tivity potential "slightly more than nonsmokers" The study also demonstrated that regular exercise and age are factors that increase productivity as «.ep ARTS IN AMERICA ON THE RISE Though Americans report that their leisure time is shrink- -_'ing, they are using this de- creased time more carefully and, as a result, the arts are flourishing. According to a Louis Harris study conducted for Philip Morris, Americans have less leisure time (time spent other than working, going to and from work, doing chores, shopping, going to school, or sleeping), a decrease attributed to the lengthening of the workweek and the growing number of women who now work outside the home. Americans are, however, spending more of their valu- able free time on the arts: the study reported increased at- tendance over 1975 figures for movies (up 8 percent), theater (up 14 percent), and pop music concerts (up 14 percent). Participation in KEE%WT'aucH ~ Dear Philin Mn-c =.= If a city or county passes air pollution control laws to "p: ;tect" nonsmokers from smokers, why can't a class-action suit be filed forcing the city or ~-county to pass a law "protecting" non-car owners from the Pollution caused by car owners? Don Hale Santa Rosa, CA ;°Philip Morris MaAazine replies: Laws that restrict smoking in public places are inefficient. Differences between smokers and nonsmokers are best handled through common courtesy. Dear Philip Morris Magazine: I am writing to inquire about organizations that might have been established to combat the many restrictions being imposed upon smokers. As a smoker I am becoming more and more concerned over the many rules, regulations, and laws governing where an individual can and cannot smoke. Sue Jones San Diego, CA arts-related activities is also up, most notably in the field of photography, which has grown phenomenally (from 19 percent participation in 1975 to 47 percent in 1984). SMOKER FIGHTS FOR RIGHTS A Milwaukee tax collector filed suit to protest his office's no-smoking rule-and won. In April 1984 a Wisconsin state law took effect that restricts smoking to designated areas in government offices and other public places (hospitals, the- aters, elevators, stores, schools, and large restaurants). Richard Rossie's workplace, the De- partment of Revenue, banned smoking and Rossie sued, claiming that the ban was unconstitutional and would cause him "extreme hardship and irreparable injury:' Ac- cording to his attorney, Rossie risked discipline and dismissal if he smoked on the job. Circuit Judge P. Charles Jones issued a temporary in- junction against the Depart- ment of Revenue in October 1984, following it with a permanent injunction in Feb- ruary 1985 that prohibits the agency from disciplining workers who smoke. Jones told Associated Press that he did not consider the constitu- tional questions Rossie raised but focused instead on the fact that, since the state law does not penalize violators, the Department of Revenue's no-smoking rule exceeded the authority granted by the state legislature. 11 Dear Philip Morris Magazine: I heard that a pro-smoking organization is under way and I would like to know more about it. Even though I do not smoke myself, I am very interested in supporting all such organizations. I feel every- one should have the right to smoke if they so choose. There are more and more places that are banning smoking, and I feel that smokers are being discriminated against. In this day and age when everyone is fighting discrimination, the tobacco industry seems to be getting the blunt end of the deal. I would appreci- ate any information you could send me. Maynard P. Wright 111 Quinton, VA Philip Morris Magazine replies: Thank you both for your inter- est in smokers' rights. To help our message be heard above the static of the antismoking hysteria, we urge you to write to your elected representatives and tell them how you feel about laws prohibitingsrnoking. Some organizations that might be of inter- est to you are: The Tobacco Institute; 1875 I St., NW; Washington, DC 20006 Smokers United; James Steward, President; 301 East 69th St.; New York, NY 10021 Smokers Club; Bob Carli, President; 506 Ohio St., Apt. 8; Terre Haute, IN 47807 National Smokers Rights; Ronald Flynt, President; Box 1773; Goldsboro, NC 27503 Freedom Organization for the Right to Enjoy Smoking Tobacco (FOREST); Sir Christopher Foxley-Norris, President; Bond Way House; 3/9 Bond Way; London SW8 1SJ England. PHILIP MORRIS MAGAZINE/SUMMER 1985 17

PM NOiEB00K AT ISSUE: Why Excise Taxes Don't Work An interview with economist Ingo Walter Professor Ingo Walter is chair- man of finance at New York University's Graduate School of Business Administration. He has also served as a consul- tant to various U.S. govern- ment agencies, including the Department of Commerce and the Environmental Protection Agency. Prof. Walter recently spoke with Philip Morris Magazine about the impact of increased tobacco excise taxes on the national economy. PM: How does an excise tax function? Prof. Walter: An excise tax is basically a sales tax on a particular product, as opposed to a general sales tax that applies to all products or to broad groups of products. The purpose of the excise tax is to target one specific product that the government feels is rela- tively insensitive to price, so that not much less of the product will be bought at a higher price than at a lower price. It's a good revenue- raising device. PM: Some people have termed excises on cigarettes or alcohol "sin taxes:' Is there a history of that kind of taxation in this country? Prof. Walter: We've really not had a history of that in the United States. The whole purpose of taxation is to raise revenue for the government, but very often the revenue- raising function is altered to achieve some other social goals. The very fact, though, that products like cigarettes are relatively insensitive to price increases, as I explained be- fore, tends to make the "sin" dimension self-defeating. And whenever you tax a specific product you make it more valuable and expensive, and you effectively place a pre- mium on it. So it may have the opposite effect in terms of consumption. PM: So, in a sense, when a product like tobacco becomes more expensive, it also be- comes more attractive? Prof. Walter: You're increasing its value in the eyes of the consumer. Exorbitant prices also encourage smuggling and other corrupt behavior... it creates criminal activity, law enforcement costs, and so on. PM: How do increased excise taxes affect the economy? ,Prof. Walter: Taxes applied to a particular product distort consumer purchasing patterns, so that people buy less of the taxed product and more of untaxed products. If we tax cigarettes, you get fewer resources allocated to the manufacturing and sale and advertising of tobacco prod- ucts on the production side, and more allocations of re- sources to other things. If you tax cigarettes more than shoes, let's say, you may end up diverting labor and capital into the shoe business with the result that resources are mis- allocated. Labor, for example, goes from a higher level of productivity to a lower level of productivity. The result is a drop in the efficiency with which labor is used in the national economy. PM: How does this redirection of consuming patterns ulti- mately lower national revenue? Prof. Walter: In a capitalist, market-oriented system like ours, without distortions that favor one particular industry over another, you tend to get the flow of both capital and labor into those areas in which they're most productively used. Whenever you put a distortion in markets, such as rent controls or excise taxes, you shift the pattern of labor and capital allocation, so you divert these resources from more productive to less pro- ductive uses. As a result, real income and output drops, and 18 PHILIP MORRIS MAGAZINE/SUMMER 1985 the real rate of economic growth may decline as well, because we're not just talking about efficiency in using resources today, but also how they expand and get allocated over time. PM: So increasing excise taxes could mean that there could actually be less revenue for the federal or the state govern- ment down the line? Prof. Walter: Well, besides the distortive effect I've just described, when you raise taxes beyond a certain point, the product may no longer be quite as insensitive to price increases as it was before. Demand may fall off. Con- sumers may say, 'Hey, ciga- rettes are now $9 a pack and I'm going to quit smoking, or I'm going to cut down and spend more of my money on something else: At very high prices, in other words, product demand may be more sensitive to further tax hikes than it is at very low prices. Up to now cigarette consumption has not been all that sensitive to price increases, but that may not be true forever. When you think about cigarettes costing, say, $10 or $20 a pack compared to today's prices, it would make sense that sooner or later a consumption drop-off is going to lead to a reduction in actual tax revenues. But we haven't experienced that yet, which is one reason the gov- ernment is continually encour- aged to raise taxes. But eventu- ally it could kill the goose that lays the golden eggs. PM: So the problem with trying to keep these types of taxes within reasonable bounds is that so far they have been profitable? Prof. Walter: That's right, but you know, there's more than one issue at stake here. There is a philosophical question of whether it is correct to tax individual products: Is it correct to punish the consum- ers of pipe tobacco or cognac compared with the consumers of ice cream or salmon, for example? I think you can argue on pretty strong grounds that excise taxes are really not a particularly good way to raise government revenues because of their distortive effect on the market and production, which we dis- cussed earlier, and because of the punitive effect on certain consumers. PM: When are excise taxes justifiable, if ever? Prof. Walter: When they become a use tax, like the highway toll and tunnel toll I pay each morning. I'm paying for the use of a public facility. I may not be paying exactly what the resource is worth, but, by and large, use taxes are simply an attempt at pricing a public service. So economists would generally defend use taxes, especially if they can be tailored to the user's marginal benefit. PM: What does that mean? Prof. Walter: Well, for exam- ple, in tunnel tolls, if you can

h have different tolls at different times of day, so that during rush hour it costs, say, $12 to go across the Hudson, and during non-rush hour it costs 504. The tax is aligned with the demand patterns and the marginal benefit the user gets from crossing the Hudson. Just as when you fly first-class you pay a higher ticket tax than if you fly economy. PM: Have excise taxes on cigarettes gone up in recent years in response to federal, state, and local budgetary problems, so that excises are being used to fill in the gaps? Prof. Walter: I think that's probably true. When the Reagan administration reduced effective personal income and business taxes, the government had to look for other tax resources. There have also been substantial budget cuts and restraints put on federal outlays, and part of that's hit the states and municipalities, there s no doubt about that. The states and municipalities also have received a smaller share of the federal revenue pie, so they too have to compensate by trying to raise more revenues on their own. So if municipal and state governments want to increase spending, or even maintain spending, for education or other socially useful purposes, they have to turn to their own indirect or direct taxes. But people are fed up with rising property taxes and income taxes and municipality taxes, and the states can't pass the increase in budget outlays on to the feds because Washing- ton is reducing its support, such as revenue sharing. So, you know, a lot of governors and mayors are behind the eight ball. They've got budget problems that need to be addressed. So an indirect tax on a product that is politically vulnerable is a fairly attractive way to raise additional state and local revenues. One place to look is indirect taxes, like the cigarette tax. PM: So, in effect, people who consume alcohol or cigarettes -targets for excise increases- are taking up the slack for the whole community? Prof. Walter: Yes, they are being discriminated against in a revenue sense because of their preferred consumption patterns. When there is tre- mendous pressure on the part of government t.-, raise money, it's going to turn to the easiest and most politically vulnera- ble areas to target. How are people going to defend them- selves against a discriminatory tax increase of this kind when smokers and drinkers don't like to identify themselves as such? It's sort of a tyranny of the majority. PM: What would be a less discriminatory way to raise revenue to fill in those gaps? Prof. Walter: Well, I think a good nondiscriminatory way is to increase general sales taxes. And one way that hasn't been tried in the United States is a value-added tax. PM: What is that? Prof. Walter: Let's say you own a retail drugstore, and to purchase the goods you sell costs you $100,000 per week, and then you sell them for $120,000, so $20,000 is your markup. That $20,000 is considered the value that you add in the selling process. Taxing that amount by, say, 20 percent would mean con- sumers would pay $4,000 specifically on that $20,000 of added value. For example, the consumer would pay "1.20 for a toothbrush, plus 54 value- added tax. This is a good tax because it's very difficult to evade. It taxes consumption rather than savings, so it encourages the latter. And it's very broadly based so it doesn't distort production or consumption patterns, as we discussed earlier. The only disadvantage is that it tends to hit poor people harder than rich people because they have to spend [proportionally] more of their income, so more of their income is subject to the value-added tax. On the other hand, if you think that's a problem, then you could couple the tax with increased financial assistance to truly needy people. Most countries have a value-added tax; the United States doesn't. Another good thing about it is that exports are not subject to the tax (while imports are), so your domestic producers are not subject to competitive distortions. PM: Are there any other ways in which the government could increase its revenue without raising excise taxes? Prof. Walter: The government could simplify the income tax system we have, which is probably the most complex in the world, and close some of the tax loopholes that give the impression the tax system is high- ly unfair. Some people simply feel they pay more than their fair share of taxes. I feel that way; you prob- ably feel that way too when you read about somebody who's got a $2 million annual income and doesn't pay a penny [in taxes]. So these are two possibilities -closing off some of the loop- holes and reforming the direct tax system, plus a value-added tax or other broad-based tax on consumption. This would be much superior to the sys- tem we have now and to rely- ing more intensively on excise taxes. PM: Why are user-specific taxes, like the taxes on ciga- rettes, often called "hidden taxes"? Prof. Walter: If you go to the supermarket and buy a basket- ful of groceries, you know exactly what your tax is because it is stated on the sales slip, and you can decide whether you want to get upset about it or not. With ciga- rettes, it does not say on the pack how much of the price is federal tax or how much is state tax. It is all included in the purchase price, so you don't really know the tax incidence. This means you, as a voter, canndt react intelli- gently to the tax. PM: What can people do about it? Prof. Walter: The public has not yet reacted to this kind of hidden tax. The politicians like that. They can probably get away with having a higher total tax burden by hiding it. Smokers haven't organized themselves very well for political action; until they do, these types of taxes will remain hidden and probably keep on rising. E3 PHILIP MORRIS MAGAZINE/SUMMER 1985 19