| For Immediate Release | September 17, 1997 |
MR. REED: I think we can go straight to questions. We're delighted with the broad bipartisan support we had here this morning, and broad support from throughout the public health community. We're also pleased that the House has agreed by voice vote to repeal the $50 billion tax credit in the balanced budget agreement. Now both Houses have agreed with the President.
Donna, do you have anything else to add?
SECRETARY SHALALA: No. We're happy to take your questions. Yes?
Q Are you talking about trying to change the current deal that takes effect, or are you talking about starting from scratch with legislation, no matter what the tobacco companies say? And if you are on the second, how are you going to handle the tobacco advertising portion of it?
MR. REED: As we said -- as the President said this morning, we want to build on the settlement, we want to build on the hard work of the attorneys general. He laid out his plan today, his priorities, and we're going to work with Congress to achieve those. One of our goals has long been to restrict advertising and marketing aimed at kids. We have an FDA rule that's in court on that score. And we'd also like to see at the end of the day further voluntary efforts on the part of the industry to stop that kind of marketing to kids.
Q If you can't get voluntary agreement from the industry to go along with this, what happens at that point? Would you go in --
MR. REED: Well, we haven't lost our court case yet. We lost in the first round, but that's going to be -- it's under appeal.
Q Bruce, will the President ask Congress to stay in session beyond October to enact this plan, as Mike Moore suggested out front?
MR. REED: I think the President already got this question earlier today, and he said that a lot of work can get done. We'd like to see Congress get started right away. Hearings are already underway. We'll be up there working with them to get legislation written. But that kind of decision is ultimately up to the congressional leaders.
SECRETARY SHALALA: And I think it's important to note, too, that some members of Congress have indicated that there will be hearings after they recess, so there is -- we have every expectation that we'll continue to work on the issue with members of Congress, perhaps initially directly with their staffs, so that we don't expect to lose any time while Congress is officially in recess.
Q But you will not formally ask the leadership to keep Congress in session?
SECRETARY SHALALA: No.
Q Some people compare this to the original Clinton health care plan, and then when you try to do everything at once it's very hard, and then you end up doing things step by step instead. Do you think that's what's going to happen now -- instead of a global settlement that takes care of all the issues, that you tackle one issue at a time and do it that way?
MR. REED: I think with the priorities that the President laid out this morning, we have demonstrated that we've learned one lesson from our experience with health care, which is that it's more important to lay out clear priorities, work with Congress in a bipartisan way to get things done. We made a conscious decision together some time ago not to present a detailed piece of legislation.
Q What's the answer to the question -- that you are going to incrementally do it?
MR. REED: No, no, the President called for a comprehensive national tobacco legislation. I think that's the way Congress is likely to approach it.
SECRETARY SHALALA: Reducing youth smoking is not possible unless all the pieces are together -- the advertising campaign, the public -- the counter-advertising campaign, the public education campaign, raising the prices of cigarettes, strong penalties. I think the point that we have made is that you need a comprehensive strategy. That's the first point that the President made. You need a comprehensive strategy so that while each committee will take up a different part of the President's proposals, it's necessary that we watch all the parts at the same time if we really want to bring down youth smoking. After all, that's what this is about.
Q I don't think the President said anything this morning about liability protections for the industry, and so, where do you stand on that? And if you don't intend to support that, do you think you could get a comprehensive bill through Congress without
SECRETARY SHALALA: Actually, he was asked about that today.
MR. REED: Yes. I think what he said was that we were willing to look at caps on liability, but we want to make sure that Congress enacts legislation that fulfills the five principles that we laid out in the plan this morning.
SECRETARY SHALALA: The point the President was making was he put on the table what he wants from legislation, and other parties including the tobacco industry will be putting on the table and presenting to Congress what they want. But the five points that he laid out are the core of what he believes we need to reduce teenage smoking.
Q Secretary Shalala, after all the notoriety and pressure on this issue of advertising targeted at teenagers, to what extent is the industry still doing it and can you give some examples?
SECRETARY SHALALA: Obviously, the most obvious targeting and the clearest one that was identified was Joe Camel. We have believed for a long time that glamorizing tobacco, particularly as it impacts on young girls, is something -- making tobacco hip and cool is something that affects teenage behavior. And that's why the advertising rules that we laid out in the FDA reg were focused on those places where young people would see the advertising. And as long as there are -- I think something like a third of all the seniors in high school in this country are smokers, smoke at least for some part of a month, according to our measurements -- we're concerned about any advertising that makes smoking look glamorous, look cool and look like what hip people do. So it's not just the cartoon characters, but the broad effort that has an effect on teenager's behavior.
Q Bruce, the tobacco industry statement so far today has been negative on what the President said, but somewhat noncommittal, saying they want to work it out. At the end of the day are you prepared to impose legislation over the wishes of tobacco, or must this comprehensive settlement, by nature, be consensual?
MR. REED: We want to work at comprehensive tobacco legislation with the Congress. We'll do it in a bipartisan way. We've laid out our priorities. I can't tell you whether at the end of the day the tobacco industry will be there or not. They came to the table in the first place. There are clear incentives for them to get comprehensive national legislation. But we clearly have some differences.
Q But that didn't really answer the question, I think, of whether you would impose, or you'd have to have -- is it still a deal that they agree to, or is it possible that you would impose something on them?
MR. REED: Well, we're not going to be negotiating with them, we're going to be negotiating with the Congress.
Q But aren't some of the actions in the settlement things that they brought to the table and that are essentially voluntary actions by them?
MR. REED: Yes, I think -- we talked about the advertising.
Q Are there others besides that?
MR. REED: I think the protocol dealt primarily with that.
SECRETARY SHALALA: That was the only thing that was outside the legislation.
Q The President listed as one of the things he wants the full control of your agency to regulate nicotine. Now the Federal Appeals Court could well overturn the decision on that. Doesn't that remove some leverage that you have over the tobacco industry, and what role does that pending judgment have?
SECRETARY SHALALA: Well, that's just one judgment. We won in the lower court. We will appeal if we have to, if we get a negative decision. We believe that we have that authority. We've asserted that authority and we will appeal it in the courts.
Meanwhile, we will do what the President said when he announced those FDA regulations, and that is that he would like them to be part of the legislation. So affirming FDA's role in regulating tobacco as it does other drugs and medical devices we expect to be part of the legislation. It is a core principle in what the President laid out today.
Q The numbers that are used for the way that increases in price can actually reduce smoking are quite specific. My question is, is this a science or is this an art? How solid are these numbers, how predictable are they?
SECRETARY SHALALA: It actually is research that is quite well-known. The CDC has been doing that kind of analysis for a number of years. I think that the number of a 10 percent increase will produce a 7 percent decrease in youth smoking is probably the article by a professor at the University of Illinois, who is a very distinguished analyst in that area. We'd be happy to provide anyone that wants a copy of that research a copy of that.
MR. REED: But in addition to that, I think researchers have focused on the potential impact of price and the 10 percent increase-7 percent decrease is the best rule of thumb. But we never had a price shock of the kind of magnitude envisioned here. We don't know how much of an impact the counter-advertising and public education measures will have. And that's one of the reasons why we're determined to have strong financial incentives for the industry to do everything in its power to reduce youth smoking, because our view is the tobacco industry knows more about hooking teenagers than anyone else and they probably know more about how to stop it.
Q Secretary Shalala, have you been in touch with Senator Lautenberg? He's introducing legislation today related to the tobacco settlement. And what impact does that have on what you're trying to do --
SECRETARY SHALALA: Bruce Reed and I saw Senator Lautenberg yesterday as part of our briefing of the congressional groups that have been drawn together to discuss tobacco. He did indicate that he was going to introduce legislation. And again, we said to members of Congress that we would look at the pieces of legislation that were introduced by individual members and that we would be working with committees, as well as with individuals, on their legislation.
Q As a follow-up, did he indicate where he was going, which is essentially what he laid out today about not relying so heavily on industry and so forth? What's your thinking on what he --
SECRETARY SHALALA: I didn't have a detailed discussion with him yesterday. I don't know whether Bruce did. But we will be -- again, we haven't reviewed that piece of legislation that's been introduced. We'll be reviewing all of the legislation because we'll be asked for our positions on it, and, again, using the expertise of the CDC and the FDA as well as Treasury and OMB to help guide legislation on the Hill so that it's consistent with what the President recommended.
Q How do you handle the tax deductibility of any industry fund that's established?
MR. REED: What the President said this morning is that the stiff industry penalties for failing to meet the youth smoking targets will not be tax deductible.
Q The President is going to keep it separate from the funds --
MR. REED: The Treasury Department has said that the kinds of annual payments envisioned in the original settlement are standard business practice, that they would be deductible.
Q -- the price shock is $1.50 really over 10 years, it's unclear to me how soon any of this will kick in and will it be really a bigger shock than 62 cents a pack?
SECRETARY SHALALA: That's the point of giving the Congress the flexibility to mix a price increase with very strong penalties. What we're trying to do is to use economic incentives to change the behavior of the industry to make certain that they're making extraordinary efforts to reduce youth smoking, and to young people themselves because price seems to be the one thing that we --that everybody believes will have an effect on young people's behavior and it will, in fact, have an impact on reducing the number of young people that smoke.
There also is experience in other countries on using large prices. But finding the right mix will be part of our discussion with the Congress. We absolutely did not in the President's recommendation commit to $1.50 at the end of 10 years. That wasn't what this proposal was about.
Q What would they be penalized for? Just selling to young --
SECRETARY SHALALA: If smoking by young people does not come down, it will be expensive for the companies. That is the proposal, that there will be heavy financial penalties. It will be very expensive if they're not working very hard to bring down youth smoking.
Q Do you mean -- are you going to be able to prove it?
SECRETARY SHALALA: Oh, yes. Oh, yes. You know, we have year-by-year data now for different age groups. We will have much more sophisticated data not only by age, but by company -- that is, by brand name -- so that we know who's having a successful effort reducing youth smoking.
Q Secretary Shalala, can you clarify what you just said? I thought the President did commit to $1.50 increase if the targets aren't met?
SECRETARY SHALALA: It's not quite like that.
MR. REED: Well, I think he said that he wanted to see a combination of industry payments and industry penalties --
Q What's the difference?
MR. REED: Industry payments, annual payments, regardless of whether youth smoking is going up or down. Penalties are based on the youth smoking targets on the order of reducing youth smoking from current levels by 30 percent over 5 years, 50 percent over 7 years, 60 percent over 10 years. And the more the industry misses the target, the more money it would pay. And he, the President called for a combination of those that could increase current prices by as much as $1.50 over the next 10 years.
Q But if they miss the target, it goes up to $1.50, right? I mean, $1.50 is what he wants assuming targets aren't met.
SECRETARY SHALALA: In combination.
MR. REED: In a graduated way, depending on how much they missed the targets by.
Q Secretary Shalala, why put all the onus on the cigarette makers? Why not put a large portion of the onus on these convenience stores that sell to these teens?
SECRETARY SHALALA: Well, in fact, the President's proposal distributes responsibility. The cigarette companies -- there's tremendous pressure on them. After all, they are the people that have the relationships with the stores. They are, in fact -- it is the tobacco companies that provide the stores with the cigarettes to sell and that's where the relationship is. We want to make certain that the tobacco companies are doing everything they possibly can do to bring down youth smoking. And that means that they have to have -- they have to be part of this strategy. They can't simply write us a check and expect the public health people in the country to carry it on. They have to be very much part of it and there ought to be penalties in place if youth tobacco smoking doesn't come down.
Q Clarify something -- I'm confused. When you talk about potentially the price increasing by $1.50 over 10 years if penalties are not met, you're not talking about mandating a price increase, you're talking about penalties that would end up in their passing along --
MR. REED: Correct.
Q Secretary Shalala, give us your political assessment of the odds that Congress will pass a comprehensive settlement, if not this year, next year.
SECRETARY SHALALA: I think it's too early to tell. I think with presidential leadership -- and as he pointed out, this builds on what has already taken place in terms of the FDA, the settlement discussions that were held by the AGs. The President would not have stepped out on this to continue his very strong position on tobacco if he didn't believe that we could actually achieve it. I think we believe that there is a pretty good chance that next year we will get a comprehensive settlement. It may not be as big as everybody wants, but we really believe, with presidential leadership, that that's exactly where we're going.
Q Would you be willing to accept parts without, say, some of these things?
MR. REED: We want to see a comprehensive bill.
Q You've mentioned several times that money is a motivating factor on cutting down on smoking. Do you have any price tag for what you envision this will cost the tobacco industry, because the attorneys general will able to say $368 billion firm?
MR. REED: Well, as the President said this morning, from our standpoint, it's not about raising money from the tobacco companies, it's about reducing youth smoking. As a matter of comparison, the Treasury analysis of the current settlement was about 62 cents a pack price increase, with penalties of 8 to 10 cents. So it could potentially double the size. But, again, it would depend on where and --
SECRETARY SHALALA: What the mix was.
MR. REED: -- what the mix of payment and penalties was.
Q Sixty-two cents would actually be two and a half times if you went up to $1.50.
MR. REED: Well, you've got to count the penalties in the original settlement, too, which gets you around 72 cents.
Q And then you've doubled it.
SECRETARY SHALALA: But, again, our emphasis isn't on the money. Our emphasis is on the results. And that is, we have
never been about let's raise some money so we can pay for public health. We want to put everything in place that we can to reduce youth smoking.
Q So if you monitor consumption by brand, could you conceivably have $1.50 penalty put on Marlboro and then nothing put on Lucky Strike or Winston?
MR. REED: I think we'd like to see a combination of industry-wide penalties and some company by company. The brand-by-brand surveys are just beginning this year, so we need to see what kind of data we get on that. But it would be a combination.
Q Concerning the liability protections, the deal provided for banning future class actions and state attorney general suits, caps on annual liability, punitive damage, eliminating that. Which of those, or all of those are you willing to go along with if all the guidelines that the President set down this morning are met?
MR. REED: Well, I think, as I said earlier, we would condition accepting any limits on liability on getting the rest of what we're after. We had some concerns about certain aspects of the liability scheme in the settlement. For example, it put a cap on future punitive damages, damages for future misconduct -- which we think is a mistake. But we'd have to look at the whole package.
Q Bruce, why shouldn't the penalties be called taxes?
MR. REED: I think that, for one thing, the responsibility for paying these penalties comes first and foremost on the industry. All of the -- whether you're talking about a tax, an annual payment or a penalty, it ultimately has the potential to be passed on to the consumer. And in this case, that may well serve the overall goal of reducing cigarette consumption.
THE PRESS: Thank you.
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