Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 8, 1994 TAG: 9405100011
SECTION: HORIZON PAGE: D-1 EDITION: METRO
SOURCE: BY JOHN H. KENNEDY BOSTON GLOBE
DATELINE: LENGTH: Long
As tobacco sales decline in the face of higher taxes, greater regulation and further evidence of smoking's dangers, the country's economic dependence on tobacco is being tested.
Certainly no one suggests that the economy will be forced to go cold turkey. Even critics concede that, without an outright ban, a large number of people will continue to smoke. And those who do quit will spend their money on other products, to the benefit of other industries.
But as smoking subsides, many people will feel the economic pain of gradual withdrawal symptoms, from tobacco farmers to convenience-store owners.
Take Jason Dimanno.
Dimanno, who with his two brothers owns the Three-D's convenience store in South Boston, says cigarettes account for 40 percent of his sales. The store already is feeling the effect of last year's doubling of the Massachusetts excise tax to 51 cents per pack. With further big tax increases, the Dimanno brothers would keep working, he says - but their three other employees would be at risk.
``I think it would have a dramatic effect,'' he said.
Adds Dennis Lane, who runs a 7-Eleven store in Quincy, Mass.: ``Cigarettes are the cornerstone of the convenience-store industry.''
If Dimanno and Lane are able to quantify with certainty their reliance on cigarette sales, it is tricky to precisely gauge the reliance of the economy as a whole. The tobacco industry and anti-smoking activists come up with very different scenarios as they predict the effects that smoking regulations and declining tobacco consumption will have on employment, tax revenue and health-care costs.
By all accounts, the industry pumps billions into the economy - cigarettes are still used by 46 million consumers, who paid $45 billion for them last year.
This included nearly $11 billion in state and federal excise taxes.
And cigarettes generate thousands of U.S. jobs, although anti-smoking activists call industry estimates inflated. One industry study says tobacco products directly create nearly 700,000 jobs - in farming, warehousing and manufacturing, and among wholesalers, retailers and suppliers. The resulting payroll totals $16.2 billion, according to the 1990 study, which the accounting firm Price Waterhouse prepared for the industry.
These jobs are threatened by higher taxes, regulation and declining consumption, the industry claims. Raising the federal excise tax from the current 24 cents per pack to $1 per pack could eliminate 270,000 jobs throughout the country, according to estimates by the Tobacco Institute, the industry's research and public relations arm.
``That is what I call entrenchment, economic entrenchment,'' says Thomas Lauria, a spokesman for the Tobacco Institute. The tobacco industry is ``woven into the fabric of the American economy. It cannot be torn out without massive disruption of the economy.''
But massive disruption that would come from eliminating the industry is unlikely - at least for now. Neither industry leaders nor critics believe tobacco will be banned in the United States in the foreseeable future.
``That's just not a politically or an economically feasible option,'' says Dr. Jeffrey E. Harris, a physician and economist at the Massachusetts Institute of Technology, who testified before Congress last year on cigarettes and health care.
Richard Daynard, whose tobacco liability project at Northeastern University in Boston tracks and encourages legal assaults on tobacco, said: ``What we're looking to do is to phase it out. What we don't want is 40 to 50 million crazed addicts creating a huge black market and the virulent anti-social behavior that would follow.''
More likely is an array of measures that would severely dampen consumption - increased taxation, further restrictions on smoking and perhaps an outright ban on advertising, with the intent of deglamorizing the product for younger smokers.
For now, the weaning of the economy from tobacco will be gradual, analysts say, with consumption rates continuing to drop by 1 to 2 percent each year, from their current level of 26 percent of adult Americans.
The industry itself is optimistic that consumption will drop to no lower than 20 percent. ``No matter what the restrictions, we think that is probably rock bottom,'' said Lauria of the Tobacco Institute.
Others predict lower rates, depending upon the pressure brought by government. Daynard, the Northeastern professor, sees a leveling off at about 15 percent ``if the government really treated [tobacco] as the addictive and killer drug that it is.''
Some economists say even a sharp drop in consumption would create rather than eliminate jobs, at least in non-tobacco-growing states.
That's because people who quit smoking would redirect their spending to other goods and services, according to Kenneth E. Warner, an economist at the University of Michigan's School of Public Health. And those goods and services may create jobs in industries closer to home, he says.
``The vast majority of states are actually hurt by tobacco, independent of health effects,'' Warner says. ``The income of tobacco on the economies of non-tobacco-growing states is negative.''
Apart from jobs, though, states take in significant tax revenue generated by cigarette sales. But Warner points out that in a state like Michigan, where cigarette taxes represented less than 3 percent of the total revenue last year, eliminating the tax wouldn't be crippling.
In calculating tobacco's effect on the economy, specialists also examine how tobacco use affects the health-care system.
In the middle of the fray is a group of health-care officials and economists who challenge tobacco's contributions to the economy. Harris of MIT, for example, estimates that smoking's direct health-care costs by 1995 will amount to $88 billion, or a whopping $3.71 per pack.
Industry officials and some economists label such claims absurd, saying they fail to take into account that smokers assume many of their own health-care costs, in part through the payment of premiums to private insurers.
The back and forth of economic costs and benefits, due to be played out as health-care reform gets a fuller airing, reaches some macabre extremes. The tobacco industry has long characterized the typical smoker as a hard-working, tax-paying citizen. Some suggest, although only privately, that because many smokers die younger they do not live long enough to draw Social Security benefits, as do longer-living non-smokers, thereby relieving society of that cost.
Specialists are also trying to calculate the impact that further regulation would have on the hospitality business. Many bar and restaurant owners have complained that local smoking bans could drive them out of business.
But a countrywide ban on smoking in restaurants, now under consideration by the Labor Department, would eliminate the geographic patchwork of local laws that sends diners fleeing from non-smoking towns to places where they can light up after a meal.
Whatever the effects of declining tobacco consumption, they would be felt most intensely in the country's six major tobacco-growing and -manufacturing states - North Carolina, Kentucky, Tennessee, Virginia, South Carolina and Georgia. North Carolina and Kentucky, for example, account for two-thirds of the nation's tobacco-growing employees.
``The manufacturing process alone makes up 9 percent of our gross state product,'' said Blake Brown, an assistant professor at North Carolina State University in Raleigh.
But in tobacco-growing states, the news wouldn't be as bad as many fear. For one thing, the manufacturing end of the industry has been slowly shrinking, in part because of more efficient machinery, which can spit out 10,000 cigarettes per minute.
The tobacco companies themselves hardly face a grim future, some analysts say.
``I think the earnings of these tobacco stocks will continue in an upward momentum over the next several years,'' said John C. Maxwell Jr., a prominent tobacco analyst for Wheat First Butcher & Singer in Richmond, Va.
by CNB