Phil Gramm

Mr. GRAMM

Mr. GRAMM. Let me finish my question and then the Senator from Utah will have the opportunity to ask one.

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. Madam President, I suggest the absence of a quorum.

Mr. GRAMM. I want to pose a question related to what the Senator from Utah has said. The Canadian experience, as the Senator is probably aware, is critically important because many economists and others who study this data claim that the numbers asserting a 10-percent increase in prices results in a 6-percent decrease in consumption are false. In fact, if these numbers really held true, we could increase prices by 200 percent and eliminate all smoking in the country. Everyone knows that is a nonsensical result. Is the Senator aware that, when challenged on this point, the administration has used the Canadian experience as proof of the success of raising taxes? When challenged on the assertion that there is clear and convincing evidence of a dramatic decline in smoking and teenage smoking as a result of tax increases, administration spokesman and Treasury Department official, Jonathan Gruber pointed to the Canadian experience. I would like to read from an editorial by Nick Brookes printed in today's Washington Post. Mr. Brookes is talking about the Canadian experience and quotes the health minister of Canada. Basically, as the Senator from Utah pointed out, the Canadians had such a disastrous experience with black markets and smuggling that it actually drove the effective cost to teenagers of cigarettes down, not up.

Mr. GRAMM. No one knows exactly the impact of this tax increase. One of the things we need to know, in order to estimate the impact of the bill on things like a black market, is what would be the price of a pack of cigarettes. I assume the Senator is aware that one-half of all cigarettes consumed in Great Britain are purchased on the black market. When you reach the threshold of promoting illegal activity, you end up not getting the revenues and dramatically lowering the price of the product. By adopting this amendment we could actually lower the effective price to teenagers of tobacco products by creating a black market that would come from the increase in price. Is the Senator concerned about that?

Mr. GRAMM. Is the Senator concerned that that we could get into a position of having an active black market, as is true now in many countries in northern Europe, in Canada, and in many of our own States with high tobacco taxes? If we end up spawning a black market so that cigarettes are purchased by teenagers and by adults illegally, does the Senator share my concern that we could get into a situation where the black marketing of cigarettes could become an entre to inducing people to take a step beyond cigarettes to drugs?

Mr. GRAMM. Mr. President, it is clear we are dealing with an issue of grave importance, representing tremendous amounts of money, with very strong passions on the issue. And, quite frankly, there is relatively little good information about the bill. We don't even know what the impact of this amendment would be in terms of the cost of the product on which the tax would be imposed. The logical thing to do is follow the rules of the Senate. The rules of the Senate are very clear. As long as a Senator wishes to speak, or answer questions, that Senator has the right to do it. I think, rather than interrupting the process, we would all be better off to just follow the rules of the Senate. On that basis, I object.

Mr. GRAMM. I will ask one final set of questions, and then I will yield the floor. As the Senator said, 34 percent of the cost of this tax will be paid by families earning less than $15,000 a year, 13.1 percent will be paid by families earning between $15,000 and $22,000 a year, and 12 percent will be paid by families earning between $22,000 and $30,000 a year. The Joint Tax Committee estimates that an individual making less than $10,000 a year would see a 41.2 percent increase in their Federal tax burden as a result of this tax increase. The newest numbers I have seen indicate that an individual who smokes could see their Federal tax burden rise by $356 as a result of this tax. A couple where both husband and wife smoke would see their tax burden rise $712 a year as a result of this tax. Here is my question: Considering the concern the Senator from Utah has about black markets, what will the price of a pack of cigarettes be under this bill? It is my understanding that today, depending on which State you live in, the price is roughly $2 a pack. The underlying bill has a $1.10 tax per pack increase, and a series of other provisions that will drive up the cost, including, the look-back penalty, some estimate it could be as high as 44 cents per pack; the liability cost, 50 cents per pack; the licensing fee, 14 cents per pack; and the decline in volume could be as much as 48 cents per pack. I do not know how to assess these numbers. I certainly do not claim to be an expert on them. Does the Senator have any idea, what the price of a pack of cigarettes will be under the McCain bill and how much a pack of cigarettes will be if this new amendment, raising the cost $1.50 per pack, is adopted? It is a critical question. If we know the cost will be $5 a pack, for example, we can look at the experience of Europe where they have similar taxes. We could look at their black market structure, look at the amount of illegal transactions occurring, and begin to see what the impact of this will be. But nowhere have I seen any bottom-line figure on what the price of a pack of cigarettes will be as a result of the underlying bill and the amendment that the Senator is trying to kill through his amendment. Does the Senator have any data on that?

Mr. GRAMM. Is the Senator aware that in a poll taken last week, American families were asked what concerns they have about what their teenager is doing? Thirty-nine percent were concerned about illegal drugs, 16 percent were concerned about joining a gang, 9 percent were concerned about their teenager drinking alcohol, 7 percent were concerned about their teenager having sex, 7 percent were concerned about their teenager driving recklessly, and 3 percent were concerned about smoking. So if we create a black market by increasing tobacco taxes, we could easily be taking a step that converts an issue that concerns 3 percent of American families into an issue that concerns 39 percent of American families, that is their teenager using illegal drugs.

Mr. GRAMM. Returning to the point on which I would like to base the question. The administration assets that there will be a dramatic impact on teenage smoking by raising tobacco taxes. The question about the impact of higher taxes on teenage smoking was posed today in USA Today. When Americans were asked, ``Do you believe higher cigarette taxes will reduce teen smoking?'' 70 percent said no and 29.9 percent said yes? Is the Senator aware of that?

Mr. GRAMM. Will the Senator continue to yield?

Mr. GRAMM. The point I want to make is this: The administration has used the Canadian experience as proof of the effectiveness of raising taxes on teen smoking. Canada raised taxes dramatically on cigarettes and then later decided to cut taxes. Is the Senator aware that the Health Minister in Canada, Diane Marleau, has said that the Government's decision to cut taxes in Canada would actually reduce consumption among teenagers because it would ``end the smuggling trade and force children to rely on regular stores for cigarettes where they are forbidden to buy them until they turn 19?''

Mr. GRAMM

Mr. GRAMM. Madam President, we have had over a dozen Senators who have stood up and said that while the Kennedy amendment raises the effective tax on a pack of cigarettes to $1.50 per pack, it has absolutely nothing to do with money. Over and over, our colleagues have said this is not about money, it is about children. They say they don't want the money, they want the impact of higher cigarette prices to discourage children from smoking. It seems to me, Madam President, that if that is in fact what they want, that there is a simple way to give it to them, and that is, we should attach to the Kennedy amendment a tax cut aimed at the very people who are paying this increase in the price of cigarettes. In doing that--may I have order?

Mr. GRAMM

Mr. GRAMM. I would be happy to yield without losing my right to the floor.

Mr. GRAMM. I yield without losing my right to the floor, Mr. President.

Mr. GRAMM. Mr. President, I want to make an opening statement on the bill. I want to cover quite a few areas. I always try to be brief but it is going to take me a reasonable amount of time to complete my statement. What I would like to suggest is that I go ahead and make my opening statement--and I will try to do it as briefly as I can--and then I will yield the floor and allow the normal process to continue.

Mr. GRAMM. Mr. President, I begin by congratulating our dear colleague, Senator McCain, for the leadership he has provided on this bill. Senator McCain was asked to report a bill out of the Commerce Committee. He didn't get an opportunity to choose who was on the committee. He didn't get the opportunity to write the bill as he would have chosen to write it. But his mission, as assigned him by the majority leader, was to report a bill from the Commerce Committee. Serving as a member of the Finance Committee which got sequential referral of this bill and, in the process, made the bill worse, I begin by saying that no matter where I end up on this bill, I congratulate Senator McCain for the work he has done in bringing the best bill he could, given the committee he had to work with and the many interests competing against each other on this bill. While we are not on the same side today, I hope that at the end of the process, after conference, perhaps we will be on the same side, but I want to make it clear that, in my opinion, it is unfortunate that when we debate a big issue--and this is a very big issue--often we stand on the floor of the Senate and talk about things that not only don't mean very much to the American public, but often don't mean very much to us. Today we are debating a very big issue: hundreds of billions of dollars of taxes, hundreds of billions of dollars of spending, a high and noble purpose trying to prevent children from smoking and, in the process, affecting their health. So this is a big issue. I simply lament that so much of the debate is tainted by trying to impugn the motives of people who are engaged in the debate. We have all seen ads run in the paper that refer to this as the McCain bill which is aimed at raising taxes and increasing spending. The bill does raise taxes, it does increase spending, but that is not the intent of the Senator from Arizona. There is no doubt in my mind that he has brought us the best bill that his committee was capable of writing. Let me also say that anyone who opposes the bill knows that they are immediately going to be tarred as being the spokesman for the tobacco industry, which in this debate has become the embodiment of all evil on this Earth. I just lament, going into the debate, that we cannot simply debate the issues without getting into impugning the motives of the people who are involved in the debate. While it may sound trite to many people who might watch this debate, let me say that I believe that for all practical purposes, everyone involved in this debate in the Senate is trying to do what they believe is right, and they are neither the servant, in their own minds, at least, of those who want a massive increase in taxes and spending, nor are they the servant of the tobacco industry. It is a shame that when you debate a really important issue, that rather than being able to simply focus on the substance of the issue, you end up being pigeonholed, with the debate focused around whose interest you supposedly speak for. Obviously, the first question we have to ask on this bill is, What is the primary effect of the bill? This bill, obviously, raises taxes by hundreds of billions of dollars. Depending on the estimates you look at--they vary greatly--there is as much as a $200 billion difference in the estimates as to how much money this bill raises. But once you get to $500 or $600 billion, arguing about another $100 or $200 billion does not really add much to the debate. The bottom line is this bill is a huge tax bill by any definition of ``tax bill.'' It is also a massive spending bill. In fact, we will have never passed a bill--let me state it as my opinion. In trying to look back and attempt to fit this bill into the broad range of legislation dealt with by Congress, it is hard for me to find an initiative that is this big in terms of its fiscal impact since Lyndon Johnson was President in the first year after the Kennedy assassination. So this is a big bill--big taxes, big spending, and a big and noble objective. The first point I would like to comment on is, Is this about tax and spend, or is this about children smoking? We have ads in the newspapers every day arguing one point or another. We have ads running in many of the States urging our colleagues to not band together with the cigarette companies against our children. We have ads in the paper urging other colleagues to not participate in tax or spend. How can you ferret out what the truth is? Well, obviously, it is a very difficult task. But let me tell you what I think are some of the hallmarks we ought to look at in trying to ferret out the truth. Let me try first to define the question more precisely. Are we raising tobacco taxes to prevent children from smoking or to fund new spending programs? It seems to me that is a fair question to begin with in this debate. And let me tell you what I think would be some of the hallmarks you would find if the tax increase were to deter smoking rather than to fund programs and the hallmarks you would find if it had instead become a piggy bank for massive new spending. If the objective of the tax increase was simply to discourage smoking, then I think what we would find would be an effort to give the money back in tax cuts because the objective would be to affect the price of cigarettes, not--Mr. President, could we have order?

Mr. GRAMM. I thank the Chair.

Mr. GRAMM. Mr. President, I think if you were looking at a rational policy to deter the consumption of an item by raising its price, but your objective was not to collect a huge amount of money to spend and your objective was solely to get people to reduce their consumption of that product, it seems to me that one of the hallmarks of such a program, one of the outward and visible signs of that objective, would be the imposition of an excise tax to raise the price of that product. But you would try to offset the bulk of that with a tax cut that was more or less aimed at giving tax cuts to people in the same income groups as those who would be paying the higher taxes so that you would not be lowering their real income. But in this case, I simply note, Mr. President, in looking at this bill we do not see that happening. In this bill, we are seeing hundreds of billions of dollars of new taxes, but we are seeing none of this money given back to the people who are paying these taxes. So I would think that is evidence that raising revenues to fund new spending plays a significant role in this bill and in the final outcome of the bill, whether or not that is the stated objective of the legislation. I think a second hallmark of a bill that has turned into a giant piggy bank would be the kind of spending which occurs--have you ever noticed when you are spending your own money you tend to spend it pretty prudently, but when suddenly you have an opportunity, a financial bonanza to spend someone else's money, the spending becomes very, very careless? Well, I would pose as a question, in trying to determine if this is about children or about money--what evidence is there in this bill of careless spending? I want to just present two pieces of evidence. The first has to do with payments to attorneys. I know many Members of this body are attorneys, and I am not going to get into all this business about ``some of my best friends are attorneys,'' and I am not trying to bash attorneys, but I am trying to make a point about spending at a level that could only suggest this bill has become a piggy bank for massive new spending. Let me begin by looking at the amount of money going to attorneys out of this bill. By almost anybody's measure, this bill will, if adopted, set out a procedure where attorneys who have been involved in these cases will get a payment of at least $4 billion. Now, nobody knows what $1 billion is. Maybe Ross Perot does, but few others know what $1 billion is, so let me try to convert it down to English. In the lawsuits which have been settled and where billings have been submitted lawyers are said to be seeking $5.7 billion. Now, let me try to convert that into something which people can understand. If the lawyers who have worked on these cases were paid $1,000 an hour for an estimated total of 200,000 hours they have spent on the lawsuits which have occurred to date, they would be owed $200 million, but they are reported to be seeking $5.7 billion or close to an average of $30,000 an hour and the effective rate of compensation in this bill could be--let me swallow before I say the number--$100,000 an hour. Now, I ask my colleagues, what kind of legislation would we ever pass, in representing the 260 million people who live in this country, that would pay anybody $100,000 an hour to do anything? The plain answer, we all know, is that we would never, ever, pass an appropriations bill that compensated somebody at $100,000 an hour. In fact, we would be very much challenged and probably criticized--and probably justly--if we were compensating people $1,000 an hour. Now, what does it suggest about this bill? Let me make it clear, we are going to have a debate about lawyers' fees, and I will have a lot to say when we have the debate, but my purpose here is not to mock the fact that we could be paying $100,000 an hour to lawyers under this bill. My point is a far more important point, and that is, how could you have a bill that paid $100,000 an hour? The only way you could have a bill that paid $100,000 an hour is if you had put together a bill that had massive amounts of money that are not viewed as money that has come from real taxpayers and, therefore, you have sort of a ``slam it up against the wall'' kind of approach to distribute the money. Only in a bill where the objective was to raise revenue and spend it without any regard for the priorities of spending it could you possibly end up with a bill that would compensate attorneys at $100,000 an hour-- especially a bill that is sanctioned by the Federal Government and especially a bill where the money is coming not from tobacco companies but from people who are in families, 73 percent of them, that make less than $50,000. A look at the lawyer fees in this bill is an important piece of evidence, it seems to me, that needs to be looked at in this debate as to whether this is about smoking or whether it is about money. The next issue is equally controversial, and I am not going to debate it here. I will probably get into the debate when we have amendments about compensation to tobacco growers, but I want to make the same point about the tobacco settlement with farmers that I made about the lawyers. Let me give a little short course on the history of American tobacco policy. Again, my purpose is not to criticize the policy of the settlement but to make the point about how careless we have been in spending the hundreds of billions of dollars that are entailed in this bill. The tobacco program started in 1938 as a way of trying to raise the price of tobacco. It was a program instituted by the Government to benefit the tobacco grower, and it was a program where we provided a production quota where the people who were growing tobacco in 1938 received quota based on the number of acres they were growing. The idea was to limit production, to keep people out of the tobacco-growing industry, and to make the price of tobacco products higher than they would be in a competitive market. Not singling out tobacco here, we did it for virtually every other crop, but that is how the program started. The program was an effort to use Government power to benefit tobacco farmers, something not uncommon. We use Government power all the time to promote the interests of many groups, generally at the expense of the consumer. Now, what has happened over time is that more and more of the people who own these quotas have moved off to the big cities, and when we are talking about compensating tobacco farmers, you get the idea that we are talking about compensating people who are actually growing tobacco. The great bulk of every proposal that has been made--from the Ford proposal to the Lugar proposal, to the Kennedy proposal, to the Robb proposal--a lot of proposals, but virtually all of these proposals are focused fairly narrowly on compensating people who own the quotas, not the people who grow the tobacco. Now, why is this important? It is important because 63 percent of the quotas that the Government gave away in the first place are owned by people who don't grow tobacco. So when we are going to compensate under this program in the name of helping tobacco farmers, the truth is that the great bulk of the money is going to people who don't grow tobacco but they have often become very wealthy people by owning a benefit which the Government gave them, and they then leased that quota to grow tobacco to farmers who actually get out and farm tobacco, which is a tough, backbreaking business. Now, getting to my point. What do you think would be a reasonable compensation for us to give to the holders of these quotas to, in essence, end the program? Let me remind my colleagues that unless the bill has been changed and it has been rewritten--and I am eager to hear what the new provisions are--but unless they have been changed, we are not talking about taking the land when we pay people. We are not talking about barring them from growing tobacco. We are simply compensating them for an effect that we believe this bill will have on demand. And while we throw around numbers, the plain truth is, nobody knows what effect the bill will have on the demand for tobacco. We are in the midst of a program where we are phasing out Government price supports in the broad base of American agriculture through a bill referred to as Freedom to Farm. Under this bill, we set up a 7-year program where we provide transition payments to farmers so that at the end of the 7 years they have the freedom to farm, the freedom to succeed, and the freedom to fail. Let me say, it is one of the most enlightened policies we have instituted. Here is my point: We have evidence for seven crops as to how much we have paid people who grow those crops in return for phasing out the Government program. Let me just run through some of these costs. For wheat growers, we are paying them $125 an acre. That is to phase out the wheat program. We pay it over 7 years, $125 an acre. For corn, we pay $200 an acre, paid out over 7 years. For grain sorghum, we pay $131 an acre. For barley, we pay $70 an acre. For oats, we are paying $8.38 an acre. For upland cotton, we are paying $245.99 an acre. For rice, we are paying $714.09 an acre. Now, how much do you think we are paying per acre in the least costly tobacco bill which has been proposed? Let me give you a hint. It is about $18,000 an acre. Let me repeat that number. If we paid tobacco quota owners--not tobacco farmers; we are paying the people that own the Government license; relatively little of the money is going to the farmer--if we paid them the total of the amount per acre that we paid all of the other seven crops combined--in other words, we paid them every penny we pay corn, wheat, grain sorghum, barley, oats, upland cotton, and rice combined--we would pay them $1,495.78 per acre. If we paid them the combined amount for all 7 crops, it would be that amount, but yet we are paying almost 18 times the amount we paid every other crop combined to buy out tobacco producers. And the final incredible paradox is that we have a market for tobacco quotas. In other words, I could go out this afternoon--I do not know if I could do it this afternoon because this bill is on the floor and I guess people think it might pass. But last week, I could have bought a quota to grow tobacco for $3,784. I could have bought a quota to grow tobacco for $3,784. That was the average cost of a quota, at least the only number I could find last week. If people have other numbers, I would be happy to be educated. But we are getting ready to pay somebody who went out on Friday and bought that quota five times what they paid for the quota, and then we are still going to let them grow tobacco, and we are still going to let them own the land. I am not here today to criticize the tobacco program. I am here to raise the question, Is this bill about smoking or is it about money? When we are paying lawyers $100,000 an hour and when we are paying tobacco growers, or at least the people who own the right to grow tobacco under a Federal licensing program, 18 times what we paid all 7 major crops combined to phase out their program, does it not suggest that this bill is about money, and not only the use of money, the vulgar use of money? How can we justify these kind of numbers? Let me make it clear. I have many colleagues from tobacco-producing States. I don't have tobacco in my State. It is easy to pile on some State when you don't have the product grown in your State. I experienced that with sheep and goat raisers. I am willing to support a buy out of tobacco growers and the people who hold quotas. But I cannot justify the kind of figures we are talking about--18 times the combined buy out of all 7 other basic agricultural products when added together. What does all of this suggest? It suggests that this bill is not only about money and quantities of money, the likes of which we have seldom seen here, but it is also about the perilous use of this money where we are taking money and collecting taxes and we are distributing it to various interest groups and the lack of care with which we are distributing it is clearly indicted by the amounts of money that we are giving people. We are going to get a chance to vote on both of these issues. I do not want to enter into a debate about them here. I will debate both of them when we get to them. But the point I want to make is this: This is evidence that this bill is about money and not about teenage smoking. It is clear evidence, it seems to me, that in distributing this money the totals are so big that there has not been great care taken with the distribution. Please recognize that if working people got to keep the money, they would spend it wisely. Even if it were in the appropriations process in Congress, much of it might be thrown away but some of it might be used for some good or objective effort. I simply say this bill stands indicted in how careless we have spent hundreds of billions of dollars in dividing up this windfall, this winning of the lottery, by the designation of this industry as the enemy of the people and thereby creating a right and a public demand that we seize this money. The next issue I want to talk about is the tax itself. On this issue, I think we have one of the greatest gulfs between the rhetoric of the bill and the reality of the bill that exists. The rhetoric of the bill is that we are taxing these tobacco companies. The rhetoric of the bill is these tobacco companies have conspired to deceive; these tobacco companies have conspired to induce children to smoke. I don't dispute that. I think it is true. I think there is increasing evidence that is true. But the rhetoric is that somehow we are penalizing the tobacco companies and the tobacco industry with this massive bone-crushing tax of hundreds of billions of dollars. That is the rhetoric. But what is the cold, hard reality? The cold, hard reality is that virtually none of these taxes are being paid for by tobacco companies, and, in fact, we have an incredible provision in the committee bill to make it a crime if the tobacco company absorbs any of the tax and does not pass it through to the consumer. So not only does the tobacco company not pay these hundreds of billions of dollars of taxes, but we have in this bill a provision--almost unimaginable--that makes it a crime for the companies not to force the consumer to pay the tax. So not only do we not tax the tobacco companies but we protect them in case any of them would say, ``Well, look, I do not want to pass the whole thing through but I would like more of the market.'' Who pays this tax? I would like to suggest that my colleagues ought to go out in Washington, DC, and walk the streets and try to take a look at who is smoking. What they are going to find when they do that is that basically smoking in America, while there are exceptions to every rule, smoking today is basically a blue-collar phenomenon. When you look at the distribution of the tax burden, you see it as clearly as anything that is visible. The tax that this bill imposes, hundreds of billions of dollars of taxes, will be borne overwhelmingly by blue- collar workers. According to the Joint Tax Committee, 74 percent of the taxes that will be collected under this bill will be paid for by Americans who are in families who have incomes of less than $50,000 a year. So the rhetoric is we are taxing these big, evil, conspiring tobacco companies. But the cold reality is that not only are we not taxing these tobacco companies, but we have provisions in the bill that protect the tobacco companies from anyone not passing the tax through to the consumer. So every penny, for all practical purposes, of hundreds of billions of dollars we are going to collect is coming from real honest to goodness people who are buying tobacco products, the very victims of the conspiracy that this bill is said to rectify. The very victims of the conspiracy that this bill is aimed at rectifying are the people who will pay these taxes. And 74 percent of them are members of families who earn less than $50,000 a year. I don't have any intention, with all due respect, of hurrying up my statement. I intend to cover each of these issues, and I am not going to delay them. I am certainly not filibustering.

Mr. GRAMM. Let me say, I understand the Senator from Arizona wanting to move the bill forward. There are some key points that need, I believe, to be made before we start voting on amendments. I am not going to be in any way dilatory. I have several other issues I want to cover. But I will move with all due speed in covering them. But I do want to say that we have a bill that has come to the floor without objection. We are debating it and I want to make it clear that we are going to debate this bill. We are going to have a full airing of views. It is imperative that we all understand what is in the bill. I intend to object to the unanimous consent requests that would limit my right or the right of other Senators. This is the Senate. I remind my colleagues that when Jefferson came back from France where he had been Minister to France when the Constitution was written and he asked Washington what the Senate was for--and many of you know the story--Washington, being a southerner, often cooled his tea in a saucer before he drank it. Jefferson asked him what the Senate was for. If you had the House, what did you need the Senate for? And Washington explained to Jefferson that in moments of heated public passion, the heat of public opinion would overwhelm the House but the Senate would be like this saucer, as he poured his tea into his saucer to cool, and it will cool passions before it acts. So I do not intend to delay, but I do not intend to be hurried either, nor do I intend to have my rights limited even by my dearest of all friends, Senator McCain. Now, 74 percent of the taxes that are collected under this bill are collected from Americans who are in families that have incomes of less than $50,000 a year. Far from taxing the evil tobacco companies, the cold reality is, as much as we would like it to be otherwise, as much as we would like to convince ourselves and others that it is otherwise, this is a massive, regressive, crushing tax on blue-collar America. Let me give you a figure which is astounding to me, and if it weren't from the Joint Tax Committee I would question its validity. But listen to this number. Of Americans who make $10,000 a year or less--very-low- income Americans--if we pass this bill, we will raise the percentage of their income coming to the Federal Government by 41.2 percent. Let me give you that number again. For people in America who earn $10,000 or less, so substantial is the impact of this cigarette tax on the amount of their income coming to the Federal Government that the percentage of their income going in Federal taxes will increase by 41.2 percent from this cigarette tax increase alone. Who is paying this tax? Americans who make less than $10,000 a year are seeing their Federal taxes rise by 40 percent as a result of this bill. Those who make between $10,000 and $20,000 will see their Federal taxes rise by 9.8 percent. Those who make between $20,000 and $30,000 will see their Federal taxes rise by 4.4 percent. Needless to say, by the time you get down to us, Members of the Senate, we see our Federal taxes--relatively few of us smoke, but on average people who make more than $100,000 will see their Federal taxes rise by only .1 percent. So I think we are going to have to come to grips with one clear fact about taxes: We are not taxing tobacco companies. We are not taxing evildoers. We are not taxing conspirers. We are taxing victims. I hate pulling my mama into the debate, but it is such a beautiful example, I can't resist. My mother is 85 years old. She smokes Marlboros. I have spent my 55 years of life trying to get her to quit smoking, and I have failed. And now the doctors tell me that one part of her that is still in relatively good shape is her lungs. So I have quit trying to get my mother to stop smoking. I still believe it would be good for her not to smoke, but I can't get her to stop. But here is the point. The whole logic of this bill is saying to Florence Gramm, ``Florence, you have been exploited. Joe Camel has made you smoke for 65 years. The tobacco companies, through their advertising, have forced you to smoke. And in doing so, they have affected your health. They have perpetrated a terrible evil, and we are going to do something about it.'' So Florence asks, ``Well, what are you going to do about it?'' Well, what are we going to do about it? We are going to make my 85-year-old mother pay higher taxes. So we tell her she is exploited. We are outraged about it. The President is outraged about it. We are outraged about it. So what do we do to her to show her how outraged we are? We raise her taxes. Now, please forgive me if I seem to be struck by the incredible paradox that under this bill the victim is penalized and the perpetrator of the fraud is not only not penalized, not taxed, but protected by an incredible provision that forces those who might not pass through all of the tax to my mother to do so. One final point before I leave taxes in my effort to get on and finish my opening comment goes back to this evidence. What is the evidence that this is about getting people to quit smoking, and what is the evidence that this is about money? Well, let me give you a clear- cut piece of evidence. If the objective of the bill was to get people to quit smoking, you would put the tax on full tilt on day 1. When an amendment was offered in the Finance Committee to raise the tax to $1.50 a pack, the proponent of the amendment offered it phased in over a 10-year period so as to prevent a consumer backlash. What is a consumer backlash? Why would you phase a tax in if the objective is to get people to respond to the tax? Well, we all know. Many of us have served on the Finance Committee. All of us have been involved in debates that entailed tax increases. The reason you phase a tax in is to try to hide it from the taxpayer and to try to reduce the backlash to it or the economic or political response to it, and the way you do it is, you start it out small and then each year you make it bigger, hoping nobody notices. But isn't it an incredible paradox that a tax which is supposed to be a tax to shock people into stopping smoking is phased in so as to minimize the ``consumer backlash'' to it? If the purpose of the tax was to get people to stop smoking, you would hit people with a tax at its highest level on day 1. Consumer backlash would be what you want. But if the purpose was to raise money, then you would phase in the tax. I submit that the proposal before us, the amendment to raise the tax to $1.50, and every proposal save the one in Finance where I raised this point, each of these proposals phases in the tax, and you would never phase in the tax if the purpose of the tax was to get people to respond to it and stop smoking. You would phase in the tax only if you wanted to minimize their response to it and their awareness of it. I think that is additional evidence that the objective of this bill, or at least the likely result of it, is to raise hundreds of billions of dollars and spend the money. The bill is not structured in a way one would believe it would be if its sole objective was to get people to quit smoking. I have three final issues I want to talk about. The first issue is one that weighs heavily on my mind. Maybe I am the only Member of the Senate who is concerned about this, but it is an issue that I am greatly concerned about. We are setting a precedent for America's future with this bill. There are many elements of the bill that I am sympathetic to, but there is one element I am very frightened about. Here is that element. It is stated in a clear form--maybe overstated, but I don't think so. What has happened in this bill is we have picked, in this case an industry, and it has been so vilified that it is popular to tax the product it produces, even though the tax is on blue collar workers and not the tobacco companies. And the logic of this is, because of the negative impact on people's health of consuming this product, that tobacco, nicotine, is addictive, and the people who sell the product know that and market it in such a way as to get people to consume the product. So as a result, we are getting ready to impose one of history's larger tax increases on the consumers of this product. This is a view which basically says my mother is not to blame for having smoked for 65 years, it is not her fault; she was induced to smoke by an industry which conspired to attract her as a customer, and to hold her as a customer. Now, if we take that view in this bill, there is no way you can look at this bill without reaching the conclusion that we have decided my mother and the millions of other people who smoke are victims and they have, against their will, made a decision--if we divorce them from responsibility for their own decisions, where does this end? Does anybody here who has ever known an alcoholic not believe that spirits, whiskey, alcohol is addictive? Is there anyone listening to this debate anywhere, who has ever known someone who was an alcoholic, who doesn't believe you can get addicted to whiskey? Next month, are we going to have this same--or next year--are we going to have the same process with regard to hard whiskey and beer and wine? Are we going to discover somewhere in the deep files of the liquor companies 10 years from now that they targeted their ads to today's 15 year olds? Are we going to discover that the beer brewers have figured out what ads to run to get us to go to the refrigerator and get a cool one? And are we going to start this process next year on alcohol? I don't see how it can be otherwise. Does it end there? When I go to McDonald's, attracted, as our President is attracted, against my will--I would like to be as thin as the Senator from South Carolina. But McDonald's and every other fast food producer in America conspire against me. They fill up the television with ads that attract me to go and to eat. They do studies to try to determine my weakness. Am I not victimized by McDonald's and Burger King? And, if I am victimized, are they not liable? If I am not responsible, are they not responsible? Here is my point. I hope my colleagues will not take it as a trivial point because I don't mean it as a trivial point. Where does this end? If we don't hold people accountable for decisions they make, does it end with tobacco? Does it end with alcohol? Does it end with fattening foods? Where does this debate end? Let me submit the plain truth is everybody who has thought for a millisecond about this issue has thought about this and nobody knows the answer to it. And I submit this is a profound question we need to pray over for an extended period of time before we set a precedent which says people are not responsible for the decisions they make and, therefore, somebody else is responsible, and they can be made liable. Two final points: Nobody is looking at black markets. We have a bunch of people who are talking as if they are economists and they know what they are talking about. You know, we have all seen--many have repeated the study--if you raise the price of tobacco by 10 percent, you are going to have a 6-percent decline in consumption. If you think about that, everybody knows that is nonsense. So you could, by doubling the price of cigarettes, eliminate smoking in America? Does anybody really believe that? But yet ads run every day with that figure in it. People repeat it. Somebody made it up. It makes no sense whatsoever. Europe has imposed very, very high taxes on tobacco. Has it stopped teenage smoking? No. Has it stopped adult smoking? No. Will raising the price of cigarettes--other things being the same--have some marginal impact on tobacco use? Yes. But can we say for every 10 percent we raise prices, consumption will decline by 6 percent? Absolutely not. Any good freshman student in economics would laugh at such an assertion. But even more laughable is the arrogance of government. Let me just give you some facts. Great Britain has imposed a very high price on tobacco. But have they been able to enforce the tax? The answer is no. Fifty percent of the British market for cigarettes today, according to an article by Bruce Bartlett in the Wall Street Journal, and a fairly comprehensive study he has done at the National Center for Policy Analysis and the De Tocqueville Institute--what he has found is that countries that have imposed high tobacco taxes have seen an explosion in black market sales of cigarettes and, as a result, the cigarettes sell at substantially below the price with the tax, and in some cases they sell at less than they sold for before the new tax. When Britain has 50 percent of its cigarettes that are bought on the black market and smuggled into the country, or are produced illegally there, when Italy has 20 percent, when Spain has 23 percent, when even States in our country at the low level we now tax relative to the levels we are talking about here have experienced that, when there is more money in smuggling cigarettes in Great Britain than in smuggling 20 pounds of marijuana--should not we at least look and make some objective judgment as to whether or not we are taking an action which will fill our country up with illegal cigarettes, and so we will have some hood on the corner who is saying to our children: Look, I can sell you these cigarettes, these brands at this price; I can sell you marijuana for this price; a little crack cocaine for this price. But you know the response you get when you raise this issue? The response is that people who wouldn't know economics from ethnic studies say: There is nothing to this. There is everything to this. It is a cold reality that in Europe black markets in cigarettes are now a way of life. I think in setting out a policy that is aimed at, at least nominally, getting our children not to smoke, we need some hard evidence about black markets. If we have black markets in Canada, if we have black markets all over Europe, if we have black markets in Asia, what is the reason to believe that we are not going to have black markets in the United States of America? I believe this is an issue which needs to be dealt with. A final point and I will be through with my opening statement. I am loathe to do this because I know when I do it my telephones are going to ring off the wall, so people who work for me please forgive me. But you get the idea in reading the newspaper in Washington, DC and in working in the Senate that this issue is the all-consuming issue in America; that this is an issue the whole world, at least our part of it, our constituencies, are focused on and nothing else. One of the things I try to do is to find out what exists within the beltway and what exists in America, and try to determine what the public really thinks and what is it they want us to do. So last month I got my office to keep pretty meticulous records about the amount of information we were getting in our office about this bill and the tobacco issue. And, as of that period, ads had been run in the Dallas Morning News and the Houston Chronicle--those are the two biggest papers in my State. Some television ads, I believe, had been run. So the question was, over a 30-day period, how many of the 19 million people in my State thought this was a big enough issue to pick up the telephone and call my office? Let me give you the results. We had about 1,400 people call our Washington office and say, ``Don't raise taxes on cigarettes.'' Every one of them was generated, as best we could tell--everyone called in on a WATTS number and they had been triggered to do so. Three hundred people called in and said, ``Raise taxes on cigarettes; save our children.'' But as best we can determine, almost every one of them was triggered with the use of a WATS line and by an organized group. Here is the most revealing and important thing. Last month, in my seven offices in the State, so far as I am aware, virtually no one called on this issue. It is the No. 1 issue in Washington, DC. Ads are being run here, there, and everywhere. And in 30 days, virtually nobody who actually had to pick up their phone and call, as they normally would call an office--not triggered by a special interest group--called my office on this issue. Why is that relevant? Why it is relevant is, I think the Senate, as the greatest deliberative body in the world, needs to take a step back and not stop considering the bill--far from it. But we need to not let the special interests that are opposed to the bill or the special interests that are for the bill dominate our thinking on this bill. We need a broader perspective, and the plain truth is, this is not the be all and end all of America. My view is, we need to be sure we know what we are doing, and we need to do the right thing, because the truth is, obviously we have all been told--every time I raise this issue in one of our closed meetings, people say, ``Yeah, but they haven't run the TV commercial yet attacking you,'' or whomever. Let's not underestimate the American people. My urging here is that we take a long, hard look at this thing and we try to figure out what the right thing is and that we do it. This is a very important issue. There is a lot of money involved here. A lot of hard-working, blue-collar people are going to suffer, as a result of this tax, a lower standard of living. A lot of people are going to get huge quantities of money. Let me say that I don't have any doubt that the 1,400 people who called me against this bill on the WATS line were triggered by the tobacco companies, but I also don't have any doubt that almost all of the 300 people who called me for it were triggered by the groups that hope to get billions of dollars from this bill. As I see this thing, the only two clearly defined constituencies here are people who have a direct interest in the bill. I think we ought to listen to them to see if they have anything to say, but I don't believe we should be frightened of them. I believe we should try to ferret out what are the facts. I think we need to look at each and every one of these issues: Who is paying the taxes? Who is hurt? Who is helped? How is the money being spent? Is the money being spent wisely? Are we going to affect teenage smoking? Is this the best way to do it? Is there a better way to do it? Do we do it without reallocating hundreds of billions of dollars from blue-collar workers to basically bureaucrats and public interest advocates who--I don't know how they determine what the public interest is to advocate it, and I am always suspicious of anybody who advocates the public interest, other than myself. These are the things that I urge my colleagues to look at. Let's not delay, but let's take the time to know what we are doing. Let's give some prayerful thought about where we are going to be next year if the same thing is happening to alcohol. Where are we going to be the next year if the same thing is happening to the fast food industry? Where does all this end once you start it? I don't know the answer to this, but I think we ought to know the answer before we start down this road. Let me conclude by simply repeating the remark I made earlier, and that is, I congratulate Senator McCain for his work in the Commerce Committee. Having had a little opportunity to try to have a positive impact in the Finance Committee, I have a greater appreciation of the difficulty he faced. I think it is clear the Finance Committee made the bill worse in every respect than if they had never touched it. The question is, Given that we now have the bill on the floor, what can we do to make it better? I hope at the end of the process that I might be on the same side as the Senator from Arizona. I think the better we understand the bill, the better the chances are that we will serve the public interest and that that will happen. I yield the floor. Several Senators addressed the Chair.

Mr. GRAMM

Mr. GRAMM. Mr. President, first of all, going back from one side to the other is the practice when we have a unanimous consent agreement. The Senate procedure is recognizing people who, in a timely fashion, ask to be recognized, and they are the first on their feet and they are recognized. I went to great effort to try to see that no one objected to bringing the bill up, because I think the bill needs to be debated and I think we all need to be educated. But I am not going to agree to a time limit on an amendment that I have not seen, nor am I going to agree to not having a second-degree amendment on an amendment that I have not read, nor am I in any way going to limit my ability as one Member of the Senate to have a full debate. So I would be happy to have the Senator be recognized to offer his amendment tonight if we want a gentleman's agreement. It is a major amendment. If the Senator wants to require some debate, we will want to look at it and see if we want to second degree. We may or may not agree tomorrow to having a time limit on it. Not having seen the amendment and not knowing exactly where we are, I just say to the Senator from Arizona, I am ready to move ahead. I would be happy to have the Senator recognized but I am not ready to waive my right and the right of every other Senator to a full debate to offer second-degree amendments. I want to put people on notice of that.

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. Let me respond to the Senator's question. Generally, the case goes directly to the heart of the matter. If I thought that we could correct every problem with the bill, then I don't think there would be a need for this amendment. But my concern is that, given that anyone who opposes the bill is immediately tarred as being the lackey of the tobacco industry, given the head of steam, at least outside the beltway that the bill has, I am not confident we can correct it, and if the bill ends up passing so that my 85-year-old mother has to pay more for her cigarettes, which I wish she would quit smoking, I would at least be able to say that we guaranteed that no plaintiff's attorney is buying a Lear jet with that money. So this amendment will make the plaintiffs' attorneys millionaires but it will not make them billionaires. Now, should we have the power to stop them from being billionaires? If this were a State matter and we were not involved in it, my answer would be no. But this bill is a preemption of all those State settlements, so how can we do all those other things, set out in detail where the money is coming from and how it is going to be spent, and then leave the potential that we are going to be reading in the newspaper next month that a plaintiff's attorney got $88,000 an hour from the tax imposed on blue-collar workers? I don't want to risk that happening. That is why I am for the amendment.

Mr. GRAMM. Mr. President, let me first say that I always enjoy hearing our colleague from Tennessee speak. I find myself agreeing with everything he said. But it really has no application to the bill which is before the Senate and the amendment which is submitted to that bill. I agree with the Senator from Tennessee. We ought not to be involved in these things. But that is what has brought us to the floor of the Senate today because we are involved in that. We are getting ready, as he said--his words are better than any words I could come up with--we are getting ready to tax waitresses and taxi drivers to collect $500 billion to $700 billion, which will be used, among other things, to pay lawyers. So to lament that we are in this debate, I think, is something that I agree with but it is not relevant to the debate that is before us, which I want to be engaged in. I spoke at some length this morning, so I don't need to repeat a speech I have already given. But, in watching this debate unfold, there are several issues that have been raised that I want to answer. The first issue is we should not be setting fees. I want to ask the Senator from North Carolina a couple of questions, if I could have his attention. Are we not setting the equivalent of excise taxes to be paid by blue-collar workers all over America in this bill?

Mr. GRAMM. If I have the time, I would.