State and Local Strategies of the Tobacco Industry
ELLEN MERLO ISSUES TALKING POINTS TO PM USA TRADE COUNCIL
Abstract
States "the tobacco industry faces stepped-up legislative activity on a number of fronts in 1994 - including issues such as solid waste disposal and fire-safe cigarettes," and adds "but the three areas of most concern are" excise tax increases, smoking bans, and marketing restrictions. Discusses strategies to deal with each issue, including legislative contact, development of excise tax and indoor air quality arguments, accommodation, prevention programs, support of state preemption legislation, and formation of alliances and coalitions.
Fields
- Named Organization
- 21 CLUB
- AMUSEMENT + MUSIC OPERATORS ASSN
- CITIZENS FOR TAX JUSTICE
- CONGRESS
- DEBARTOLO
- EBONY
- EPA, ENVIRONMENTAL PROTECTION AGENCY
- FAMILY CIRCLE
- HHS, DEPT OF HEALTH AND HUMAN SERVICES
- MCCALLS
- NACS
- NATL ASSN OF MFG
- NSA, NATL SMOKERS ALLIANCE
- PALM
- PETE MARWICK
- PRICE WATERHOUSE
- PUMP ROOM
- RJR, R.J.REYNOLDS
- RUTH CHRIS STEAK HOUSE
- SUMMER OLYMPICS
- TASSC, THE ADVANCEMENT OF SOUND SCIENCE COALITION
- TI, TOBACCO INST
- TV GUIDE
- Named Person
- CLINTON
- KENNEDY,T
- SYNAR
- Author
- Merlo, Ellen (PM Corp. Affairs VP)Marketing Services prior to 1986. Understood use of nicotine addiction in selling PM products.
- R,JG
- Recipient
- PM TRADE COUNCIL
- Region
- Denver
- District of Columbia
- Georgia
- Hawaii
- Indiana
- Maine
- Massachusetts
- Michigan
- Minnesota
- Missouri
- Montana
- Nebraska
- New Jersey
- New Mexico
- New York
- New York City
- North Carolina
- Oregon
- Pittsburgh
- Rhode Island
- Richmond
- South Carolina
- Virginia
- Washington
- West Virginia
- Wisconsin
- Arizona
- Atlanta
- California
- Colorado
- Subject
- Federal Level
- Industry Sponsored Prevention Programs
- Industry Strategies
- Local Level
- marketing
- Restrictions
- State Level
- Taxes
- tobacco use
- accommodation
Document Images
draft. 1/7/94. JGR Ellen Merlo issues talking points to PM USA Trade Council
The Ma,ior Issues
The tobacco industry faces stepped-up legislative activity on a number of
fronts in 1994 -- including issues such as solid waste disposal and fire-safe
cigarettes.
But the three areas of most concern are:
j v rhea Excise tax increases, smoking bans, marketing
restrictions.]
excise tax increases
smoking bans
marketing restrictions.
Factors Driving the Issues.
[_Overhead 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. N
N
STATUS REPORT ON THE THREE MAJOR ISSUES.
iJ7
~
2.
Excise Taxes
(Overhead 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.
[verhead: Map of U. S. with 1994 tax threats shaded. More brightly
shaded states where increases are governor-driven.].
Map shows states where we face the potential for tax increases next year.
There are about 33 such 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 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 r n 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.
In Colorado and In i na, ballot initiatives to increase taxes are also on
the fast track.
2 2
3.
In 'z n, M n n, and Nebraska there's a n i i 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.
The Impact of Excise Tax Increases 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 smugglers to avoid the tax.
At federal level, even a 50 cents-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.
Smoking Bans - the Second Major Threat.
- ~ v rhead Excise tax increases, smoking bans, marketing
restrictions. J
If smokers can't smoke on the way to work, at work, in stores, banks,
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:
3 3
4.
[verh d 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.
[v rh ad 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 state
[v rh Map highlighting states where there is a threat of local or
state ballot].
jOverhead taxes, smoking bans, MARKETING RESTRICTIONS].
Nlarketing Restrictions: the third major threat
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 impose its own warning labels and
advertising restrictions.
There are three potent forces at work that are driving the proliferation of
rk in restriction proposals.
(1) THE SYNAR AMENDMENT
The Synar Amendment, voted into law by Congress in 1992, aimed at
preventing children from purchasing and using tobacco products.
5.
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
(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 include:
bans on vending machines
sampling bans
sting operations on retail locations by local health groups armed with
underage 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.
N
©
N
r
5 5
6.
Project ASSIST - Federal program established in 1990 to reduce
incidence of smoking in 17 targeted states. "ASSIST" stands for American 5-top
5moking I_ntervention %udy.
( v rh Map of the U.S. with ASSIST states highlighted. Those states are
CO, IN, MA, ME, Mi, MN, MO, NM, NC, NJ, NY, Rl, SC, VA, WA, WV, Wl. j.
$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 ASSIST state.
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 in 1992, are both funding multi-
million dollar anti-smokina proarams throuah_state_ex_cise-taxes on cicarettes.
These two states -- one on either coast -- are incubators for anti-marketing
strategies. We expect the antis to attempt to export successful programs and
tactics to other states.
[PA USE]
"NOW FOR THE GOOD NEWS."
6 6
7
For each of our major issues, we have strategies in place designed to
insure that our opponents are not successful.
( v rh ad PM legislative strategy -- Federal excise taxes. j
STRATEGY -- FET
Philip Morris USA's legislative strategy to combat a sharp federal tax
increase is three-pronged, with activities involving aovernment, in and h~,
li
Government.
Working with the governors from tobacco growing states and friendly
legislators in Congress to put pressure on the Clinton administration.
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 if this tax goes through. Here are the figures. That's five thousand
voters." It gets their attention right away.
7 7
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.
in
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
Justice and others are keeping the heat on the Administration.
The Public
National Smokers Alliance, or "NSA," -- a national organization of adult smokers
who promise 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.
- Using Corporate Affairs database of about half a million activist adult
smokers to target messages to particular legislators especially committee
members on committees where Health Care package is being discussed.
-- Working with our Corporate Affairs 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.
8 $
9.
-- Getting our message out to 100,000 PM employees in U.S. through PM
senior executives, and to our vendors through meetings in Richmond and
in NYC.
The Messages We are Delivering_
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 funding. Increasing the tax drives
down sales and thus shrinks the revenue base from which the tax is
obtained.
The tax is infiationarX. 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.
fOverhead PM legislative strategy -- state excise taxes.]
STRATEGY -- STATE TAXES
9 9
10.
Our excise tax strategy for the states is similar to FET strategy -- working
with coalitions to broaden opposition and get our message heard by state
legislators and governors.
Nlessages:
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
voters.
Economic impact studies by third party research groups such as Price
Waterhouse and Pete-Marwick document how states with high 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 there.
Our batting average is good. Last year, 38 state excise tax increases
were proposed, and only 7 actually passed.
j v rhead PM Strategy for opposing smoking bans -- build a national
coalition.]
STRATEGY -- SMOKIN G BANS
Dealing with the EPA. Smoking bans being driven by the EPA report.
10 10
