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.
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
But the three areas of most concern are:
j v rhea Excise tax increases, smoking bans, marketing
excise tax increases
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
STATUS REPORT ON THE THREE MAJOR ISSUES.
Page 2: wum04e00
(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.
Page 3: wum04e00
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
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:
Page 4: wum04e00
[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
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
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
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.
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
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.
"NOW FOR THE GOOD NEWS."
Page 7: wum04e00
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~,
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
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.
Page 8: wum04e00
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.
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.
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.
Page 9: wum04e00
-- 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
The Messages We are Delivering_
Tobacco industry directly and indirectly provides employment for 2.7
million Americans, and generates nearly $70 billion in compensation
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
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
Page 10: wum04e00
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.
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
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
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
STRATEGY -- SMOKIN G BANS
Dealing with the EPA. Smoking bans being driven by the EPA report.
Page 11: wum04e00
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
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.
( verhea Accommodation logo.]
The Accommodation Program.
Successful model accommodation program in Pittsburgh. Elements of
this program are now being implemented in cities throughout the country.
Program officially named, and advertised, as "The Accommodation
Program." More than 8.000 partici ants -- individual businesses and chain
organizations -- located in all 50 states. More than 15 state restaurant
Page 12: wum04e00
associations offering the program to their members. In New York, the Palm and
the 21 Club are members. In Chicago, the Pump Room is a member. Nationally,
the Ruth's Chris Steak House chain. belongs as does the DeBartolo chain of 71
mega-shopping malls. At present, the program is accommodating smokers and
non smokers in 37 of the DeBartolo malls.
The Accommodation Program is positioned to potential members as part
nization's overall customer service efforts whi
ave ai re
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
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 Legislation. 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.
Many of these laws will also serve to rp e-empt local smoking restrictions.
which tend to be more severe.
Mverhead States where accommodation legislation is passed ('93) and 4b
Page 13: wum04e00
The states in blue on this overhead are states where accommodation
legislation has already been passed. For 1994, we've targeted those states --
shaded green -- where we have the best chance of success.
In every state where we think it's realistic to try, we will be pushing for
pre-emptive accommodation legislation.
Similarly, at the local level, we've been able in two specific cases to help
accommodate travelers who smoke by establishing smoking lounges in airports --
in Atlanta and in Denver-- and to pre-empt local smoking bans.
The Atlanta Airport especially important foothold into the entire 1994
Summer Olympics, and beyond that as an ongoing example of the strides a city
can make when city leaders recognize the importance of accommodating all who
Mverhead PM Strategy for combating marketing restrictions.]
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 ap rp oach, gobbling up our ability to
market a small piece at a time.
Our counter strategy is to support the passage of state regulations 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
Page 14: wum04e00
does not mean, as the antis are trying to propose, sending children into an
establishment to break the law by buying cigarettes and being videotaped for
public relations as well as prosecution purposes.
In addition to reacting to Project ASSIST and to the HHS regulations on
the Synar Amendment, we also have an entire array of proactive ~rograms that
address the youth smoking issue.
It's the Law" r~ogram," which we developed in conjunction with NACS.
Retailer kit that includes lists of state laws and penalties, tips on how to verify the
age of customers, attention-getting window stickers and point-of-purchase
displays which announce the minimum purchase age for cigarettes under the
headline, "ITS THE LAW."
New version of the program for the Amusement and Music Operators
Association (AMOA), a trade association that includes cigarette vending machine
"Hel f~ng 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.
" E THESE BRAND NAMES ON YOUR PRODUCTS AND WE' SEE
YOU IN COURT" Trade press advertising campaign.
Finally, we take every opportunity to inform the public of the strict industry
code regarding advertising and promotion and that we endorse the letter and
beyond that, the spirit of the code.
Page 15: wum04e00
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.
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.
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 your state.
You can also go after the sacred cow of the EPA science by writing
letters to the editor and to decision makers, pointing out the flaws that are O
inherent in an agency that makes policy decisions and then cooks up the science ~
Page 16: wum04e00
after then fact to support the decisions. Again, we can provide you with the
information if you need it.
Fight them at the local level, and support state preemption legislation.
If you're a retailer, join the It's the Law program.
Defend your own First Amendment rights to free commercial speech.
Make your case to local business groups and to trade associations and mobilize
those groups to bring pressure to bear on state legislatures.
I've tried to give you an accurate and unvarnished picture of the industry's
true situation regarding the current political and legislative environment. I haven't
tried to pretty it up, and I haven't tried to exaggerate it either.
The simple fact is we are at war, and we currently face the most critical
challenges our industry has ever met. We have to get together and join forces to
successfully defend our business right now -- today.
Thank you. I'll be happy now to take your questions and to listen to your
comments and suggestions.
# # #