tobacco farmers continue to support themselves with relatively small
allotments. Put simply, there is absolutely no replacement in cash value
With the economic reality of states like North CaroUna in mind, let me
give you some real statistics to consider concerning the evolution of the
excise tax on tobacco products. Since 1982, the federal excise tax on
cigarettes has increased from 8 cents to 24 cents per pack, representing a
200% increase. Since 1982, the Consumer Price Index has increased by
With the hope of partially financing the cost of long-term health care
reform for the United States, I submit to this Committee that tobacco is
NOT a reliable source for two primary reasons: 1) Tobacco, like any
other product, can be taxed beyond "diminishing returns." 2) Tobacco
consumption continues to decline in the United States. It is one thing to
desire a healthy America and another to depend on a declining industry to
flnance a new health care system. Using the numbers from the
Administration's proposal - the tobacco tax is expected to bring in $12.3
billion in 1995 and only to $10.1 billion in 2000. These numbers illustrate
that this particular industry is unable to provide the needed resources over
the years for health care reform.
In light of the difficult tax battles that have been fought in the recent past,
I urge the Committee to not make a mistake in depending on an industry
like tobacco to help finance health care reform. If you levy the proposed
tax on tobacco today, you will certainly revisit this same question of
generating additional revenues in the near future. And in the meantime,
an industry which makes up the foundation of my state's economy will
have received a dreadful blow. Hundreds of small farmers will face
While I have the Committee's attention, I would also like to mention
briefly my concern for the large cuts the Administration is proposing in
the Medicare and Medicaid programs. I am concerned that in limiting the
funds to these programs, the senior citizens and poor families that rely
upon them for medical assistance will be unable to receive health care in
I want the Committee to remember the hard time we had this summer
trying to come up with cuts in these programs during our Budget
Reconciliation negotiations. The cuts that the Administration proposes are
much deeper than what we tried to do earUer ~ and may be impossible to
The cost of providing senior citizens quality health care has driven the
costs of Medicare through the roof. The cost of providing health care for
our seniors is much higher than the cost of health care for our children.
We do not have the experience which will assure us that we can make the
cuts to Medicare that the Administration is assuming. I support the
additional benefits for the Medicare population, however, we need to be
very cautious in assuming that our savings for Medicare and Medicaid can
actually be achieved. If we are not able to attain these savings, we will
place in jeopardy the delivery of health care to our seniors and poor
I respect the responsibility that lies before this Committee. Health Care
Reform is a necessity - but we need to insure that we have a very sound
and wise plan to pay for health care reform. We cannot let health care
reform fail because we failed to finance it properly.
Increasing the tax on tobacco products and making drastic cuts in
programs that provide medical assistance to low income families is not a
sound base for financing health care reform. I submit instead that the
Committee consider more progressive means of financing health care
reform. For example, instituting a 3 percent value-added tax on non-
essential consumer items could raise $130 billion over 5 years. Or if the
Committee were to look further at sin taxes - you will find that imposing a
tax on various air pollutants could raise over $300 billion over five years,
and a $16.00 per proof gallon tax on all alcoholic beverages could raise
$22.6 billion over five years.
I do not propose that if the Committee elect to use sin taxes as a way to
fmance health care that tobacco not be included. Rather, I argue that the
level of the tax must be deeply reduced and that other "sins" in our society
be made to share the burden with our tobacco farmers. I urge this
Committee to be fair and appropriate in their taxing policy.
It is crucial that what we are offering to the American people - universal
access to quality care - we deliver. Therefore, we need to propose a sound
and responsible way to finance this reform of our health care system.
There will be some tough decisions, but providing a progressive means of
financing health care \^ insure that we have a secure health care delivery
system for generations to come.
Mr. Rangel. Thank you, Mrs. Clayton.
I don't think I have ever heard a more responsible statement
coming from someone that comes from a tobacco â€” a State or region
where the tobacco industry is so important. And you are merely
saying that if tobacco is going to be included, that it should be fair,
and those people who are singled out in the tobacco industry
should be given some kind of assistance.
Until it became clear that this was necessary for a support of a
sound health system, excise taxes have always bothered me, even
when they are trying to teach the consumer a lesson, that it just
appeared to me that only the poor would be influenced by higher
prices and that other people would be free to destroy their body
and their health because they can afford to do it.
Have you ever viewed the regressiveness of these type of taxes,
whether it is tobacco or any other excise tax?
Mrs. Clayton. Well, in just looking at the Federal tobacco excise
tax, as you probably know, tobacco has only recently experienced
a significant increase over 200 percent.
And you are correct that it is the average American who has the
six pack and who also indulges in smoking. So you not only penal-
ize the industry that is growing, but you also penalize in some
ways those persons who see this as a form of recreation. And again,
as I said, I am not advocating that tobacco is free from any health
effects. But I am arguing for fairness in that.
The other point, Mr. Chairman, is that if you rely on tobacco
taxes alone to finance the senior citizen part of long-term care, vou
will find yourself not having a sufficient amount of money when
there are other options that you can consider. For instance, I had
considered that even if you had the 3 cents value-added tax â€” now,
I don't know if anybody is brave enough in Congress to suggest
that, but anyhow, I will put that as an option that could be consid-
ered, that if you did that.
Or if we were brave enough to be fair to tobacco and alcohol, if
you just added some tax on alcohol as well, you could raise money.
And so I would like to propose those as options as well.
Mr. Rangel. Well, quite honestly, I don't think politically I have
made a commitment to support the tobacco tax, but I was going to
do it. But when someone like you that comes from the region is
courageous enough to say as long as it is fair and equitable and
other things are considered, and it is just one thing rather than an
item that is just revenue raising and punishment, then I will be
glad to work with you and support the position that you have taken
on the committee.
You have made quite an impression on me with your statement.
Mrs. Clayton. I appreciate it. Thank you, Mr. Chairman.
Mr. Rangel. Mr. Chairman, at this time the other two witnesses
haven't testified. Mrs. Clayton and I haven't voted, so I'd like to re-
linquish the Chair and turn it back to you.
Chairman RosTENKOWSKi [presiding]. Mr. Neal.
STATEMENT OF HON. STEPHEN L. NEAL, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. Neal of North CaroHna. Thank you, Mr. Chairman.
First, let me tell you why I am here. Mr. Chairman, members of
the committee, I represent a congressional district which has lit-
erally thousands and thousands of tobacco farmers, two manufac-
turing plants. The manufacturing plants employ over 12,000 peo-
ple, thousands and thousands of farm families who grow tobacco.
And these families have been growing tobacco for 300 years, longer
maybe. The money from tobacco supports the schools, churches,
parks, roads, everything that comprises these communities.
And, Mr. Chairman, almost all the tobacco that is grown is
grown in North Carolina, Virginia, and a few other States. It is
simply not fair to pick out one commodity which amounts to pick-
ing out one part of the country and requiring it to fund the entire
health care tab for the uninsured and unemployed people of the en-
tire country. It is simply unfair.
Now I know that tobacco is unpopular. I know it can be politi-
cally appealing to do something like this, because the numbers are
on the other side. 75 percent of the people don't smoke, so maybe
it is popular to pick on the rest, the minority that does. But, again,
it is simply not fair.
It is not fair to increase taxes on one commodity 300 percent, es-
pecially when it is clear that a lot of things that people do are
harmful to their health. So my plea to you is to be fair. You have
that reputation. I admire it. And I hope that you will continue it
in this regard.
If you were to add all of this tax on this one product, you would
do great damage to my district and to many others. As Mr. Payne
pointed out, there isn't anything else that people there can do,
there is no realistic alternative to this at this time.
A number of our people, American people, in fact people all over
the world, choose to smoke. It is a free country. They are cer-
tainly â€” it was pointed out earlier to me, a couple of years ago, that
more people had been made aware of the health warnings on ciga-
rettes than knew that Greorge Washington was the first President
of the United States. So it is not that people don't know â€” ^haven't
gotten this message. But people do lots of things that you or some
other Member of Congress may not approve of
Most of the people who smoke are working people, average peo-
ple. It is simply not fair to add this huge tax on them and it is cer-
tainly not fair to our district to single them out for this unfair
So thank you, Mr. Chairman, for letting me appear before you
today. And I know you will be fair.
[The prepared statement follows:]
statement of Congressman Steve Neal
Before the Committee on Ways and Means
On Health Care Feform Financing
November 18, 1993
Mr. Chairman and Members of the Committee, I commend you for
holding these important hearings, and I appreciate the opportunity to
testify before you this morning.
Throughout your tenure as Chairman of this committee, you have
taken difficult issues, applied common sense, honesty, and most
important, fairness, to produce historic legislation.
I know you will continue to apply those standards as you deal
with the health care legislation.
Mr. Chairman, I represent thousands of small farmers who grow
tobacco. I also have two tobacco manufacturing plants that employ
approximately 12,000 people. The families of these people have been
growing tobacco and making tobacco products for literally hundreds of
years. The money from tobacco supports the schools, churches, parks,
roads and everything else that happens in these communities.
It is simply unfair to single out one product and one part of
the country to pay the health care tab for all the uninsured and
underinsured people of this country.
The significant tax increases on tobacco products proposed by
the President have caused me and many of my colleagues to ask a very
Is this tax fair? Can we go home and tell our constituents that
the standard applied to them is the same standard that is being
applied to everyone else.
Mr. Chairman, I appeal to you and the distinguished members of
As you listen to all the testimony concerning the devastating
impact that a 300 percent increase in the tax on tobacco will have on
the people of North Carolina and the Southeast, I ask that you and
the committee consider what I believe to be fundamental, but
extremely important questions.
Is this tax fair? Is it fair to apply this tax only to tobacco
products? Is it fair to make the economically poorest region of the
country - the Southeast - foot the bill for health care
improvements for the entire country.
Does this tax, as proposed by the President, meet the standards
which have become the trademark of this committee - common sense,
honesty and fairness?
I don't believe that it does. This tax is punitive and unfair.
The people who grow and sell tobacco are hard-working and productive.
It is wrong to single them out to carry the brunt of this nation's
health care reform costs .
Again, I appreciate this opportunity to speak on behalf of the
people of North Carolina, and I will answer any questions you or the
other members of the committee might have.
Chairman Rostenkowski. Thank you, Mr. Neal. I, in many re-
spects, agree that it is not the intention of the Chair at least to re-
sort to putting people out of business in order to have revenues.
Now, I am inclined to raise revenues in this area, but then again,
I think that we have to be reasonable with all the industries that
we are going to be dealing. Thank you very much.
Mr. Andrews. Steve, I would like to just ask you a question or
two, and I appreciate very much your comments and I know L.F.
Payne and Martin Lancaster feel strongly about this because of
your constituents and the concern that there might be some job
And I just want to say, as a proponent of raising taxes, I sure
want to work with you to do some kind of set-aside to help espe-
cially small tobacco farmers retool if they are hurt, if there is dis-
location in the marketplaces as a result of raising taxes.
But I do want to ask you a question. You said that it is not fair
to finance health care by tobacco taxes. The truth is, as I under-
stand the President's proposal and other proposals that are on the
table, raising tobacco taxes is only a contribution to financing
health care reform.
It is not the single way that either the President or those of us
that favor different proposals are suggesting that we pay for health
care. It is a way to offset some of the costs to taxpayers that we
already spend every year to help people that get sick from using
It is estimated that we spend about $24 billion a year to take
care of people that get sick from smoking. Does that sound like an
accurate number to you, Steve?
Mr. Neal of North Carolina. I'm sorry, I don't have any idea. I
do know that there are other products which cause serious health
problems. I guess what I am asking for, I appreciate your concern
for our farmers and I mean that sincerely, any tax like this would
have a very negative effect on our local economy. There is no ques-
tion about that. I am merely trying to answer your question.
Mr. Andrews. Sure.
Mr. Neal of North Carolina. There are other products, a number
of other products, when used as most people use them, alcohol, for
example, just used as many people use it, will lead to alcoholism,
sickness, death on the part of lots of people. Just as most people
eat steak, butter, eggs, so on, will lead to clogged arteries, heart
attacks and so on.
There are a number of things that we Americans living in this
free country do that we know may be dangerous, may not be good
for our health. We drive race cars, we drive motorcycles, we do all
sorts of things, ski â€” I love to ski myself â€” and people have accidents
skiing and so on. So I am not trying to say all these things are ex-
actly equal. I don't know. I do know that we live in what is sup-
posed to be a free society.
I don't think you were here when I said a little while ago that
it was pointed out to me a couple of years ago that more people
had read the health â€” were aware of the health care warning on
cigarettes than knew that George Washington was our first Presi-
dent of the United States. I just say that to point out that I believe
that most people have been warned, there is a warning on every
pack of cigarettes, every carton, every advertisement and so on, so
I believe that most people have been warned about this.
Now, if you say to me, is it logical, being warned like this, people
continue to smoke, I don't know. But people do it. And it just seems
unfair to me to say to one product, one part of the country, that
you are going to pick up the whole tab. If you spread it around â€”
if we need more revenue in this regard, I mean there are questions
about that, but if we do, why not broaden the base? If the prin-
ciple â€” I am sure this is a principle approach to the thing. Why not
apply the principle across the board?
Mr. Andrews. Well, again, as I said, I don't think anybody is
suggesting that tobacco taxes should bear the whole load here. But
it is estimated that we spend about $24 billion a year to take care
of people that get sick from using tobacco products, and I think
most of us that favor increasing taxes just want to try to offset
some of those tax dollars that go into helping people that get sick
About 1,000 people every day are estimated to die from using to-
bacco products. Does that sound like an accurate figure to you?
Mr. Neal of North Carolina. Mike, I have no idea. How about
liquor, do you have any idea how many people die from using liq-
uor every day?
Mr. Andrews. No, and I suspect that the Ways and Means Com-
mittee will have hearings on alcohol and other products, but today
it is tobacco.
Mr, Neal of North Carolina. Yes, but you know those things
aren't in the bill. That is really a point that I am trying to make.
You say tobacco is not being asked to pick up the whole tab. Well,
why aren't these other things in the bill then? I just don't see them
there. And that is what I am trying to say doesn't seem fair to me.
Chairman Rcstenkowski. Mr. Hoagland.
Mr. Hoagland. I wonder, Mr. Neal, if we couldn't find some sort
of beginning to a solution for this problem. I mean, the medical
facts are absolutely indisputable with respect to the negative ef-
fects of tobacco use on the health of America. Cigarettes are much
more directly connected to negative physical effects than many
other of the kind of products that you mention.
Mr. Durbin and Mr. Markey and others have been working for
a long, long time to try and resolve this. I wonder if it wouldn't
make sense to develop an overall strategy that will take care of the
tobacco farmers, help them shift to other products, help them find
other lines of work, in a comprehensive way so that we are not, you
know, year after year, decade after decade, having these skirmishes
between the tobacco farmers and people concerned with the health
Mr. Neal of North Carolina. Do you have a suggestion? I cer-
tainly appreciate your concern for my tobacco farmers. What do you
have in mind?
Mr. Hoagland. I guess what I am suggesting is maybe we could
try to sit down and develop some kind of program that will help-â€”
that will leave us with a long-term solution to the problem so it
doesn't continue to be occurring.
Mr. Neal of North Carolina. May I say, my friend, you know,
there is something going on, it is very interesting, and that is that
tobacco use is declining. There are warnings on packs of cigarettes
and advertising and so on and there is^ust the use in this country
is dechning. So I say there is a program. Maybe you want to do
something else. I am certainly â€” ^you know, someone suggested a
while ago that we just outlaw it. That is a thought.
Mr. HOAGLAND. Well, I know we need to get on to some other
subjects and I don't want to prolong this. Mr. Andrews presented
some charts earlier showing that we are really losing the battle,
testified that the tobacco industry spends $10 billion a year on ad-
vertising, the greatest amount of any industry in the country as I
understood his testimony, constantly trying to persuade youngsters
to become tobacco users, and that it continues to be an enormous
My only suggestion is we could all get together and take a com-
prehensive view and try and work out a comprehensive solution so
that the tobacco farmers aren't constantly fighting rear guard ac-
tions and aren't constantly suffering economic loss.
Mr. Neal of North Carolina. May I make one other comment on
that, Mr. Chairman? There, again, I must say I am no expert in
this area. It is my understanding that the advertising attempts to
move customers among brands and not â€” it is not designed to get
people to start smoking. I am not â€” I am a little uncomfortable here
because I am really no expert in this field, but that is my general
Peter, may I say, you are a very fine Member of Congress and
I respect your opinion very much and I just, as I do that of Mr.
Andrews. It just strikes me, though, that people are going to do
some things that you and I may not approve of in a free society,
and that it may not be the business of government to solve all of
I mean, if everyone has been warned and they continue to choose
to smoke, I just don't know exactly what â€” how far you want to go.
It raises some very interesting fundamental questions, it seems to
Chairman ROSTENKOWSKI. If there are no further questions.
Mr. Ford. Mr. Chairman, 1 minute, if you don't mind, sir.
Mr. Neal, you responded earlier by saying that we ought to
broaden the base, and you talked about alcohol. Just what are you
saying when you talk about alcohol, or the sin taxes? Should we
broaden the base, to include distilled spirits, wine and beer?
Mr. Neal of North Carolina. Well, if the principle is to try to
have those products that add to health care costs pick up the tab,
then I think you would want to broaden it quite broadly. I mean,
you would add â€” as I understand it, the alcohol content of a can of
beer, a drink of wine or a mixed drink is probably about the same.
So to me, I can't see any logical, principle reason for singling out
one and treating it differently than the others. So if I were going
to tax alcohol in a principle way, I think I would try to tax all of
Now, politically, that is a different question, whether you want
to do it or not. But you know when you tell the politics of tobacco,
most of the people, it is mostly working people. When we add a
new tax on them, we are adding an aggressive tax on wage-earning
Eeople. And I, by the way, if the principle is to go after, you know,
roadly based, what those things that add to health care costs,
there are lots of other things that we could add to the list.
Mr. Ford. What is your thought about including guns and am-
munition for some type of a sin tax?
Mr. Neal of North Carolina. Well, it is an interesting thought.
I haven't frankly spent a lot of time on it, but it is an interesting
Mr. Ford. Well, you talked about contributing to the health costs
in this country. Crime is certainly
Mr. Neal of North Carolina. Well, maybe there is a good prin-
ciple reason for doing that. I am not â€” I don't claim to be the expert
on this. What I am trying to do is
Mr. Ford. Well, you seem to be arguing on tobacco, so I want to
be sure that if you want to broaden the base, how far do you want
Mr. Neal of North Carolina. Well, I think if the principle is to
tax those things that add to health care costs, then maybe you
would want to consider that loss.
Mr. Andrews. Mr. Ford, would you yield for one quick question?
Mr. Ford. Yes, be happy to.
Mr. Andrews. Just for clarification, this committee doubled the
beer tax in 1990. So the beer taxes have gone up considerably. We
doubled the tax on beer in 1990.
Chairman RosTENKOWSKi. But they hadn't been raised since
1951 before we did it in 1990.
Thank you very much. Representative Neal. The Chair is going
to try to adhere to the list of Members according to the way thev
have been posted on our schedule. Mr. Markey and Mr. Durbin will
be next to testify. Welcome, gentlemen, to the committee. We are
looking forward to your testimony.
STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS
Mr. Markey. Thank you, Mr. Chairman.
Chairman ROSTENKOWSKL You may begin.