1 1 EXAMINATION OF IMPLICATIONS OF THE 2 PROPOSED TOBACCO SETTLEMENT 3 - - - 4 THURSDAY, SEPTEMBER 11, 1997 5 United States Senate, 6 Committee on Agriculture, Nutrition, and Forestry, 7 Washington, D.C. 8 The committee met, pursuant to notice, at 9:00 a.m., in 9 Room SD-106, Dirksen Senate Office Building, Hon. Richard G. 10 Lugar (Chairman of the committee) presiding. 11 Present or submitting a statement: Senators Lugar, 12 Helms, McConnell, Coverdell, Gramm, Craig, Harkin, Conrad, 13 and Baucus. 2 1 STATEMENT OF JEFFREY E. HARRIS, M.D., 2 MASSACHUSETTS GENERAL HOSPITAL, BOSTON, 3 MASSACHUSETTS 4 Dr. Harris. Mr. Chairman, my name is Jeffrey Harris. 5 Thank you for inviting me to testify today. I am a primary 6 care doctor at the Massachusetts General Hospital in Boston 7 and a member of the economics faculty at the Massachusetts 8 Institute of Technology. The views I express today are 9 mine. They are not necessarily endorsed by MIT, the 10 Massachusetts General Hospital, or any organization. 11 Today I address three questions concerning the 12 magnitude of tobacco industry payments under the proposed 13 global settlement. First, how much money will the industry 14 actually pay? Second, how does the size of industry 15 payments compare with the public and private costs of 16 illness and disability caused by tobacco use? And third, 17 what is the maximum amount that the industry could or would 18 be willing to pay? 19 Although tobacco companies will reportedly pay a total 20 face value of $368.5 billion over 25 years, the real present 21 value of the industry's actual payments will be much less. 22 First, the draft global settlement contains a little noted, 23 but important provision whereby industry payments are 24 proportionately adjusted for changes in the volume of 25 tobacco sales. 3 1 To finance the required payments, tobacco companies 2 will raise prices which will cause consumption to drop by an 3 average of 17 percent over the next 25 years. Under the 4 settlement's volume adjustment provision, that would bring 5 the face value of industry payments down to $304 billion by 6 itself. 7 Second, money paid in the future is worth less than 8 money in hand now. By my estimate, the real present market 9 value of the first 25 years of payments is $195 billion. 10 That is, the tobacco would need to invest $195 billion today 11 in long term U.S. Treasury bonds to have enough money to 12 make the payments scheduled for the next 25 years. Put 13 differently, a portfolio of corporate bonds promising the 14 scheduled payments over the next 25 years would be worth 15 $195 billion today on the bond market. 16 Of the $195 billion real market value of industry 17 payments, $105 billion I estimate will go to the States, $55 18 billion will go toward a fund to pay for judgments and 19 settlements against participating companies, and the 20 remaining $35 billion will be devoted to administrative 21 costs and public health purposes. 22 While these magnitudes appear substantial, they are 23 dwarfed by the total costs of tobacco-related illness and 24 disability on the public and private sectors of our economy. 25 The present value of future smoking-related costs to the 4 1 Medicaid program over the next 25 years I conservatively 2 estimate is $178 billion. This estimate does not count the 3 past costs incurred by Medicaid as a result of smoking- 4 related illness which would run in the hundreds of billions 5 of dollars since the beginning of the program in the last 6 1960s. 7 Neither does it count past or future smoking related 8 costs to the Medicare program. Future Medicare costs 9 attributable to smoking, I conservatively estimate, have a 10 current market value of another $192 billion over the next 11 25 years. Nor do these estimates cover the costs of smoking 12 related disability as they might be incurred by the 13 entitlement program administered by the Bureau of Veterans 14 Affairs. 15 In 1996 tobacco companies participating in the proposed 16 settlement earned $7.9 billion before taxes on domestic 17 tobacco sales and an additional $5.1 billion on 18 international tobacco sales. In total, the combined pre-tax 19 profits of the parent companies from all lines of business 20 was $15.9 billion. 21 The quantities, however, should not be taken as a 22 ceiling on tobacco manufacturers' ability to pay because 23 manufacturers can and will raise prices to finance 24 settlement payments. 25 Under the current proposal, cigarette companies would 5 1 be expected ultimately to raise prices by 62 cents per pack. 2 As a result, 90 percent of the real market value of 3 settlement payments would actually be paid by continuing and 4 new consumers of tobacco products while the remaining 10 5 percent would be derived from lost company profits. But 62 6 cents per pack is not the limit. In fact, an increase in 7 cigarette prices by more than $2 per pack would continue to 8 bring in substantial revenues, over $30 billion, that could 9 be allocated to settlement payments or retained as industry 10 profits. 11 The proposed settlement entails sweeping changes in our 12 current system of civil liability in relation to tobacco and 13 health. In the absence of Congressionally sanctioned 14 protections, tobacco manufacturers would face a mounting 15 wave of potentially damaging lawsuits not only from State 16 and local Governments, but from private parties ranging from 17 airline attendants to workers health and safety funds. 18 The value of avoidance of the potential damages from 19 such actions may be much higher, perhaps twice as high, to 20 the tobacco companies as that of the current settlement. 21 Mr. Chairman, again, I thank you. I hope my comments 22 have been constructive. 23 [The prepared statement of Dr. Harris follows:] 6 1 The Chairman. Thank you very much, Dr. Harris. Your 2 testimony includes remarkable footnotes and calculations 3 which are backup for your assertions and this is of 4 tremendous value to members of the committee as we attempt 5 to think through the three points that you have tried to 6 make. 7 Mr. Ballin, you have suggested--and in fact, you did 8 too, Mr. Sinclair--the need for a study along the lines that 9 Dr. Koop mentioned earlier. I was impressed with his 10 thought that we perhaps do not know enough--even as a 11 committee on agriculture, people deeply interested in the 12 subject--about how many tobacco farms there are in the 13 country, how many people are actually farming tobacco as 14 opposed to renting those rights to others and what the 15 implications are in the lives of those persons and 16 communities that are affected. 17 Likewise, about alternative crops, and you have 18 mentioned, Mr. Ballin, that attempts have been made already 19 to try to think through and many have been receptive in the 20 tobacco community to potential alternatives. That the 21 infrastructure of markets for these crops, of ways in which 22 the farmers might have some reasonable hope of compensation, 23 some form of income, appear to be very deficient. The whole 24 idea of infrastructure, this enormous adjustment that would 25 have to be made in many counties and many States, has barely 7 1 been contemplated. 2 Rather we have proceeded in American agriculture to a 3 reduction of farms from 500-some thousand, as you pointed 4 out, to something over 120,000 now, without regard to these 5 families or to the infrastructure or to the communities. We 6 have simply noted that these sorts of things have been 7 occurring. 8 I want to know with regard, once again, to the blue 9 ribbon committee idea, what is the urgency of this? I ask 10 this as I asked Attorney General Norton, in the event that 11 we are moving toward a Congressional piece of legislation 12 incorporating the settlement there is a lot of unfinished 13 business to do with regard to these growers, the 14 communities, the community development, all of the things by 15 and large most members today and most witnesses have agreed 16 need to be done. 17 How much time is this going to take? Who, in the 18 field, already has done some of this research and what sort 19 of resources could we call upon? 20 Mr. Ballin. Senator, I think that the creation of the 21 commission can go forward as settlement talks and 22 discussions go forward because I think that no matter what 23 allocation of money is going to be given to the farmers, we 24 are still going to have to do some fact-finding as to how 25 that money is going to be allocated. What is the best use 8 1 of that money? 2 There are some studies going on and some pilot projects 3 being done in North Carolina and Kentucky to look at 4 alternatives and supplementation to crops. There are some 5 studies that have come out of the University of North 6 Carolina of surveys of farmers to get a better perspective 7 of what they see their future being. 8 That information is out there. But I think that a blue 9 ribbon panel that will look at not only the agricultural 10 aspects of this issue but also looking at non-agricultural 11 aspects in those communities really needs to be done and it 12 needs to be done with experts in investments, small farmers. 13 There is a commission that has been established by the 14 Secretary of Agriculture on small farms. It is meeting in 15 Washington the last couple of days and it is holding 16 regional hearings. 17 I think that kind of information from them, but also 18 going into the tobacco communities and hearing from the 19 farmers is going to be essential as we move forward over the 20 next several years and into the next couple decades. 21 The Chairman. I would ask, Mr. Ballin, that you make 22 available to the staff of this committee lists of studies 23 that you and your organization might have. The staff 24 already may be appraised of these, but at the same time I 25 see some urgency in our proceeding with as comprehensive a 9 1 knowledge of who has done some work. 2 Mr. Ballin. We would be happy to do that and also put 3 you in touch with others in North Carolina, Virginia, 4 Tennessee and elsewhere who are doing these things because I 5 think talking to them and finding out where they are headed 6 and the work they have done is going to be very useful for 7 the directions you head. 8 The Chairman. That would be very helpful. 9 Dr. Harris, in my opening statement, I suggested a more 10 effective route toward reduction of teenage smoking or first 11 smokers might well be the adoption of a $2 per pack Federal 12 excise tax. What is your judgment, or have you done 13 modeling, as to what kind of reduction in terms of teenage 14 smoking might occur if a $2 per pack tax were to be 15 assessed? 16 Dr. Harris. I have, in fact, looked at that. 17 Currently, at least in the most recent 1996 survey, about 18 18 percent of 13 to 17-year-olds smoked cigarettes every day. 19 Historically, the 10 year average was closer to about 15 20 percent. The settlement target is based on a 30 percent 21 reduction from the historical average. That is the first 22 five years will set a target of a 10 percent rate of teenage 23 smoking. 24 To get from the current value of 18 percent down to the 25 target of 10 percent of 13 to 17-year-olds smoking would 10 1 require by itself a price increase of $1.50 per pack. The 2 current 62 cent increase embodied within the settlement 3 would get, by my calculations, the teenage smoking rate by 4 itself about a third of the way there. 5 It is possible that some other provision within the 6 proposed global resolution, such as the removal of 7 billboards under certain circumstances and other actions, 8 may independently have an effect on teenage smoking. But 9 having looked at the experience of Massachusetts and 10 California, which have such programs, I find it unlikely 11 that that by itself will reach the target. Even 12 optimistically giving credit for such programs I suspect 13 that at least $1.10 or $1.15 tax increase, indexed to 14 inflation, would be required to reach the target. 15 The Chairman. I think that is critically important 16 testimony. Let me just reiterate from my own understanding, 17 the goal now of the settlement is to move from an 18 percent 18 usage of cigarettes by persons 13 to 17 down to 10 percent. 19 And that is the goal of the settlement? 20 Dr. Harris. That is the five year goal. There is also 21 a more stringent longer term goal. 22 The Chairman. Your testimony is that in order to get 23 from 18 percent to 10 percent, a per pack tax of $1.50 would 24 be required? 25 Dr. Harris. Yes. 11 1 The Chairman. Your testimony is also that the amount 2 of increase per pack now in the global settlement of 60-some 3 cents might get a third of the way? That is maybe you get 4 from 18 percent to 15 percent? 5 Dr. Harris. Correct. 6 The Chairman. But not 10. So that essentially, if 7 your data, your modeling, is correct on the face of it the 8 global settlement is bound to come up short so that the 9 penalties that are instituted for failure to arrive at that 10 are almost bound to be assessed? 11 Dr. Harris. If, in fact, the penalties are imposed, 12 subject to other provisions currently in the lookback 13 agreement, but yes. 14 The Chairman. In fact, however, your projection is 15 that the global settlement misses by a whole lot. In other 16 words, there is a big difference between 18, 15 and 10 over 17 this large segment of the American population ages 13 to 17. 18 So if we were to take Mr. Kessler, Dr. Kessler's testimony 19 seriously, that he was saying today he is not really sure 20 about the merits of the global settlement. 21 But if it brought about the reductions in teenage 22 smoking, then he is prepared really to take another look at 23 this, put the past behind this. But if Dr. Kessler were to 24 hear your testimony he perhaps would be skeptical as to 25 whether currently we are at that point without sizeable 12 1 changes in the global settlement. 2 This is why I underline it about three or four 3 different ways. I think that this is the heart of the 4 matter, which led me to suggest a $2 per pack tax as a 5 certain way of getting the job done, if this is, in fact, a 6 major objective of American health policy. 7 Now the implications of that I also acknowledged. That 8 is the reduction of the amount of tobacco grown in this 9 country, reduction in the number of livelihoods, is going to 10 be substantial. And therefore the need to think through 11 alternative crops, a freedom to farm program, buy-out 12 settlements, a whole lot of things that are absolutely 13 necessary in transition if this health goal is to be arrived 14 at, because there are other goals, too, in American life, 15 the health of communities, of these individual people who 16 are now involved in this, without a whole lot of thought 17 having been given to them. 18 But I appreciate very much your testimony. Obviously, 19 as people understand what you are saying, you may 20 challenged. Perhaps you have been before. But I think that 21 your testimony is very, very important to all of this. 22 Mr. Sinclair, with regard to this evolution, you have 23 talked about that from your own experience. Are you 24 optimistic that such an evolution of alternative crops, buy- 25 outs, community development can make a difference? And over 13 1 what time frame is it practical that farmers and communities 2 could make such a very large adjustment? 3 Mr. Sinclair. I think it is practical. It is hard to 4 address the time frame perspective because we are so early 5 in the process. I think one of the things that makes it 6 most practical is that there is a change of attitude. I 7 think historically, the tobacco growers saw the tobacco 8 companies as their friends and their supporters and their 9 protectors, and there is a change in that attitude. There 10 is a concern about the reduction of the number of farms. 11 There is a concern about the reduction in the amount of 12 monies they are receiving out of tobacco products. There is 13 a concern about the health issues, quite frankly. 14 As they realize those, and as they work with public 15 health groups and other groups, and realize we are not out 16 to put them out of business we are out to help them 17 diversify. With the desire to do so, and with the expertise 18 that is developing, I do believe it is practical and it is a 19 reality and it can be done. 20 The Chairman. Thank you very much. Senator Conrad? 21 Senator Conrad. Thank you, Mr. Chairman. 22 I think the Chairman has engaged in a line of 23 questioning that was very important with Dr. Harris. I 24 really had intended to pursue much of that same questioning 25 myself, but I very much appreciate the Chairman doing it, 14 1 because I think that really is right at the heart of this 2 question. 3 What is it going to take to actually meet the goals for 4 the reduction of teen smoking that are in this proposed 5 settlement? The evidence that Dr. Harris has brought to 6 this committee is that the proposed settlement falls short, 7 that the increase in price required by this settlement will 8 be insufficient--in fact, dramatically so--of actually 9 reaching the goals called for in the settlement for reducing 10 teen smoking. 11 Dr. Harris, I can tell you I have spent a good deal of 12 time reading your work. I am glad to be able to meet you 13 today because I have been reading your calculations and the 14 way you have thought through these problems and I appreciate 15 very much the effort and the energy that you have brought to 16 this. 17 Dr. Harris. Thank you. 18 Senator Conrad. I would like to take you back to the 19 testimony you provided with respect to the net present value 20 of what the industry would be paying in comparison to the 21 costs in just the Medicare and Medicaid program, because I 22 want to make certain that I have it correctly in my mind. 23 As I hear you testify, you are saying that the net 24 present value of what the industry would pay over the next 25 25 years is roughly $190 billion; is that correct? 15 1 Dr. Harris. Yes, $194.5 billion. 2 Senator Conrad. $194.5 billion. And as I hear your 3 testimony, you are telling us that the net present value of 4 the cost to the Medicaid program over that same period of 5 time would be roughly $178 billion; is that correct? 6 Dr. Harris. That is correct. 7 Senator Conrad. And that the cost to the Medicare 8 program over that same period of time would be roughly $192 9 billion; is that correct? 10 Dr. Harris. Conservatively, yes. 11 Senator Conrad. Conservatively. And you have not done 12 a calculation, as I understand it, for the cost to the 13 veterans health program? 14 Dr. Harris. I have. 15 Senator Conrad. You have? What would be the amount of 16 that? 17 Dr. Harris. At this point, I have looked not at the 18 costs of health care but at the costs of the entitlement 19 payments. That is, the disability compensation payments 20 that might be required under a recent ruling--not recent, 21 but within the last few years--of the General Counsel of the 22 Veterans Administration, that tobacco related disabilities 23 that resulted from the use of tobacco during military 24 service would be compensable under current law. 25 Senator Conrad. What does that calculation disclose? 16 1 Dr. Harris. The current backlog of veterans, of our 25 2 million U.S. veterans, of whom about 20 million are over the 3 age of 45 currently, is that the potential backlog taking 4 into account that some veterans did not start smoking during 5 the military and that many may not file claims, would still 6 run in the billions of dollars, approximately $5 billion 7 with a range somewhere from about $1 billion to $11 billion. 8 I can provide the committee with more accurate figures. 9 I did not come prepared with that today. 10 Senator Conrad. I appreciate that very much and I 11 would be interested in any further calculation you have. 12 Let us take the--the most likely, I take it, is a 13 calculation of $5 billion? 14 Dr. Harris. That would be the current backlog, yes. 15 Under the assumption that only half of the veterans will 16 file claims and that only, also in turn, about half of the 17 veterans will actually be eligible for having started in the 18 military service. 19 Senator Conrad. So the potential liability would 20 actually be something higher than this, but you are making 21 estimates on how many would actually file for claims? 22 Dr. Harris. The potential liability of the backlog 23 could be $20 billion if everyone filed a claim. 24 Senator Conrad. Well, as I add this up, $178 billion 25 for Medicaid, $192 billion conservatively for Medicare, $5 17 1 billion in this just one component of veterans possible 2 costs, we are talking $375 billion net present value, 3 compared to the industry putting up $190 billion. 4 So just in these areas, which of course does not count 5 other health care costs to our society. It does not count 6 lost work time, lost productivity, payments by other payors, 7 for example private insurance companies. Have you made any 8 calculations of the cost to those concerns? 9 Dr. Harris. I am in the process of giving that. I did 10 testify in front of the House Ways and Means Committee a few 11 years ago about the aggregate costs and I am in the process 12 now of revising those. I do not have them for the committee 13 now. 14 Senator Conrad. When you have those, if you could make 15 those available we would certainly appreciate. Because it 16 seems to me, Mr. Chairman, what we are finding out here is 17 on two key tests that this settlement falls well short. 18 Number one, in terms of covering costs to Federal and State 19 taxpayers for these programs, that this settlement falls 20 very short of meeting those needs. 21 After all, not all of the $192 billion would be 22 available to address the costs to Federal and State 23 taxpayers. Is that not the case, Mr. Harris. 24 Dr. Harris. As I understand it, and I think I gave 25 some numbers in my testimony, out of $195 billion, I think 18 1 it was approximately $105 billion by my estimate--let us 2 see, $105 billion would go back to the States. That is 3 based on a schedule of State payments that I took from both 4 the Florida State and Mississippi State settlements with the 5 tobacco industry. 6 $55 billion would go toward a fund for judgments and 7 settlements against participating companies. Such a fund, 8 if not used, would be subject to allocation by an appointed 9 presidential commission, as I understand it. And the 10 finally, the remaining $35 billion in net present value 11 would then go to public health purposes, some of which are 12 recommended within the proposed resolution, and others would 13 go to, as I understand it, toward administrative costs of 14 the Food and Drug Administration. 15 Senator Conrad. So actually, according to your 16 calculations, this settlement would provide less than one- 17 third of the money necessary to meet the cost just in 18 Medicare and Medicaid programs over the next 25 years from 19 the industry itself. $105 billion is significantly less 20 than one-third of the $375 billion you calculate would be 21 the cost to Medicaid, Medicare and veterans programs. 22 Dr. Harris. That is correct. 23 Senator Conrad. And your calculation, as you just 24 indicated to Senator Lugar, in terms of meeting the goals of 25 reducing teen smoking is about one-third of what is 19 1 necessary to achieve the goals that are set out in this 2 settlement. 3 Dr. Harris. That is correct. 4 Senator Conrad. So on both those tests, Mr. Chairman, 5 it would seem to me the record, based on the analysis done 6 by Dr. Harris, is well short of meeting the requirements 7 that we face. 8 I would hope, Mr. Chairman, that--I wish Mr. Carlton 9 were still here, because I think this word needs to go back 10 to the industry that, I think, if one is trying to be 11 objective here on reaching a conclusion that this settlement 12 is well short of what is required to cover just some of the 13 costs, and of meeting one of the key goals which is to 14 reduce the level of teen smoking. 15 And I want to raise, if I could, one final point, Mr. 16 Chairman. And I appreciate very much the Chairman's 17 indulgence and patience. 18 When I asked Mr. Carlton about this ad, he indicated 19 this ad would be out under the terms of this settlement. I 20 do not believe that is the case. He indicated they would be 21 limited to black and white advertising. 22 As I understand the settlement, the black and white 23 advertising restriction applies to magazines that go to 24 children. Adult magazines can have ads other than black and 25 white. 20 1 My own view is this meets the test under this new 2 standard. And if it does, frankly, I think that is a pretty 3 effective ad. I am not so sure how effective these 4 advertising restrictions are really going to be. 5 That is not to say that they are not welcome and they 6 move in the right direction, because I believe they do. But 7 I do not think they are going to be terribly effective at 8 contributing to the reduction in teen smoking, which I think 9 should be the overarching public health goal. 10 So with that, Mr. Chairman, I again want to thank you 11 for really an excellent hearing and excellent panelists and 12 thank the witnesses, as well. 13 Mr. Ballin. Mr. Chairman, could I beg your indulgence 14 for one second? Matthew Myers of the National Center is 15 here and he would like to just make a comment about that ad, 16 if that is okay? 17 The Chairman. Mr. Myers, would you come to the table 18 and make a comment? 19 Mr. Myers. I would just like to see if I can help 20 clarify the questions about that ad and the advertising 21 restrictions, since I was both involved and have studied 22 those. 23 Mr. Carlton would correct. That ad would not be 24 allowed in Sports Illustrated, nor would that ad be allowed 25 in any youth-oriented publication. The definition of a 21 1 youth-oriented publication was taken from what Dr. Kessler 2 did when he was at the Food and Drug Administration. That 3 is any newspaper or magazine with regular youth readership 4 of 15 percent or more than 2 million. Sports Illustrated 5 would fail under both tests. 6 Senator Conrad. But would this be permitted in an 7 adult magazine? 8 Mr. Myers. That ad would be permitted in a magazine 9 like Newsweek. It would not be permitted in any of the 10 normal sports magazines, any of the sort of--Field and 11 Stream Magazine. It would not be permitted in outdoor 12 advertising. 13 The examples of Malaysia that you gave earlier were all 14 studied by the Food and Drug Administration and incorporated 15 into the agreement. None of the types of abuses that you 16 saw in Malaysia would have been permitted under the FDA 17 rule, had it been adopted. Nor would it be permitted under 18 this. 19 That is why the agreement is not a total ban, as you 20 have correctly said. It would eliminate the sort of abuses 21 we found that the tobacco industry has done in every other 22 country in the world. It would prevent you from having a 23 Marlboro Travel Agency. It would prevent sports sponsorship 24 and the other things. 25 Senator Conrad. That is very helpful. You are 22 1 indicating that this ad would not be permitted in Sports 2 Illustrated but it would be permitted in a Time or a 3 Newsweek or Fortune? 4 Mr. Myers. I will give you the exact data, if you do 5 not mind. 6 Senator Conrad. Could you, please? 7 Mr. Myers. Because it is in the Food and Drug 8 Administration rule. I looked at Newsweek, just the data on 9 Newsweek. I know it would be permitted in Newsweek. I do 10 not remember Time for sure. 11 Senator Conrad. Probably not much different. 12 Mr. Myers. I think that is probably right. But some 13 of the magazines are surprising. 14 The other point I would make about that, because it is 15 important I think to understand in terms of the youth 16 reduction, when Dr. Kessler promulgated the Food and Drug 17 Administration rule, he said that there were three prongs in 18 his mind at that time to reducing tobacco use among kids, 19 restricting youth access, restricting advertising that makes 20 tobacco products appealing to kids, and public education. 21 He said that if you did all three of those he thought 22 you could reduce tobacco use among kids by 50 percent in 23 seven years without regard to price increases. It was upon 24 Dr. Kessler's evaluation and the Food and Drug 25 Administration's evaluation that the negotiators relied in 23 1 determining that a proper balance of restricting youth 2 access, eliminating the forms of advertising that have the 3 greatest impact on kids, and coming up with a public 4 education campaign that we could not otherwise come up with- 5 -in this case, in terms of $500 million a year--that it 6 would contribute significantly to a reduction of tobacco 7 use. And that when you combined that with the price 8 increase, you would have a comprehensive that did not do one 9 or the other because the problem with a tax increase is it 10 is the change that brings out the reduction. 11 I agree with Professor Harris, who I have known a long 12 time, that a tax increase is the quickest way to get an 13 immediate reduction. The question is how you get a 14 sustained, long-term change in behavior and reduction. It 15 has got to be a combination of the two, price--and price has 16 got to steadily change, otherwise it will wear off. Many 17 European countries have, as you know, very high taxes and 18 very high smoking rates among kids. 19 Senator Conrad. They get an initial reduction and then 20 it comes right back. 21 Mr. Myers. That is right. 22 Senator Conrad. At least among adults, as I understand 23 it. 24 Mr. Myers. That is exactly right. That is why a one 25 time drop, no matter how strong, is not--there is no magic 24 1 bullet here, and that is the key. What we need to do is 2 have a price increase large enough to drive down smoking 3 rates, combined with all of the other things that Dr. 4 Kessler when he promulgated the FDA rule said we needed. 5 The agreement is a balance trying to do that. As we 6 look at the whole thing, it would be a mistake to say there 7 is a magic bullet either in terms of eliminating advertising 8 or public education or tax decreases. We have got to do 9 them in tandem. 10 Senator Conrad. Combination strategy. 11 Mr. Myers. We have got to do them in tandem if we are 12 going to succeed. 13 The Chairman. Thank you very much, Senator Conrad. 14 Let me make three comments. We have received a 15 statement and questions from Senator Paul Coverdell, our 16 colleague, and those will be included in the record 17 requesting submission to the relevant witnesses. 18 [The prepared statement and questions of Senator 19 Coverdell follows:] 25 1 The Chairman. The committee will met again in this 2 room at nine o'clock next Thursday morning, September the 3 18th with the testimony largely on the tobacco grower 4 issues, which were of course a large part of our testimony 5 today. 6 Finally, I just wanted to underline Senator Conrad's 7 analysis which fits my own. We have identified at least a 8 number of problems that are Federal problems, Medicare, 9 Medicaid, Federal veterans programs. Dr. Harris has 10 furnished his estimates of how much cost would be involved 11 in meeting the Federal obligations with known persons in 12 America today, and at least has asserted that those amounts 13 are substantially more than the present discounted value of 14 the settlement. Quite a bit more. 15 We have identified potential grower costs and community 16 development which also must be incorporated at some point in 17 all of this. And there have been doubts raised as to the 18 strategy of meeting the teen smoking objectives, although 19 all of the testimony has been developed toward meeting that 20 there can certainly be differences of opinion of methodology 21 questioning how you get there through taxes, through 22 advertising, through strategies in the conference 23 settlement. 24 I would just state, because in balance, Attorney 25 General Norton also pointed out that in the real world 26 1 litigation is going on. Some cases may be won or lost, 2 maybe all of them by one side or all of them by another, 3 probably a mixed bag as a third suggestion that she made. 4 And these aspects we all have to calculate in terms of the 5 best public policy. 6 I appreciate your testimony, that of all of the 7 witnesses today and vigorous participation by senators in 8 what has been somewhat more than a four hour hearing, but 9 you have held up well and, at this moment, the meeting is 10 adjourned and we will meet again next Thursday. 11 [Whereupon, at 1:02 p.m., the hearing was adjourned.] 12