Orrin Hatch

Mr. HATCH

Mr. HATCH. Well, my goodness, I am so happy to find that out. Thank you so much, Senator.

Mr. HATCH. I am asking the Parliamentarian if these questions have been in order under the rules?

Mr. HATCH. Mr. President, I thank the distinguished Senator from California for answering my questions. Parliamentary inquiry. Have these questions been in order under the rules of the Senate?

Mr. HATCH. Whether the companies--whether they sell a lot of cigarettes or not, they are going to have to make those payments; isn't that correct?

Mr. HATCH. Is it not true--this will be my last question--is it not true that under the substitute that the distinguished Senator from California and I are working on, that we do not base this on a price per pack of cigarettes, our $428.5 billion, we base it on payments that have to be made over 25 years?

Mr. HATCH. The Finance Committee did not hear any testimony on the tobacco issue; the Commerce Committee heard from Secretary Summers as well as Mr. Feldman. Is the Senator aware that the $1.10 price that is so widely reported in the media as the add-on to the current $1.95 or the $2-per-pack price at the manufacturer's level does not include a whole wide variety of factors, like the wholesale markups, the retail costs, the additional excise taxes added on by the States, litigations costs, the lookback, all factors that could be add-ons to the retail price under this bill? So it is pretty clear that it is a lot higher than what the media are reporting is $1.10. It is a lot higher, isn't it, than what the White House has indicated? And I would just ask the Senator this other question: Isn't it plausible to believe these Wall Street analysts, whose very livelihoods depend on trying to arrive at correct economic projections in order to advise clients about whether or not to invest money, who have used extensive models to make those projections rather than just a 5-line sheet of paper?

Mr. HATCH. Let me just finish this. What is more, according to these experts, we will reach this twice as high level twice as fast as called for by the President. I guess we should ask whether the American public understands that what we may actually be talking about under the Commerce Committee bill is a $50- per-carton price for cigarettes. Now, if you are like me, and do not, and will not, ever smoke, this may not seem so bad, literally; but I just hope that the public health lobby does not next focus its attention on the problem of obesity, or we may have chocolate ice cream at $20 a gallon, a $10 package of potato chips, or a $5 slice of apple pie, sold by prescription no doubt, if we continue to follow this type of bureaucratic reasoning. Is the Senator in disagreement with me on this? And I didn't even talk about cheeseburgers!

Mr. HATCH. If these Wall Street analysts are correct, and the Treasury estimates are off in year 5, under the Commerce Committee bill, we may reach a price increase that is twice as high as what the President has called for; that is, a $3-per-pack price increase rather than a $1.50 price increase. That is certainly a far cry from the $1.10 we hear so much about; isn't that so?

Mr. HATCH. So it is far higher than the up to $1.50-per-pack increase that the President called for over a 10-year period; is that correct?

Mr. HATCH. I would ask the Senator if she is aware--let me emphasize the $4.50 to $5-per-pack prices that these leading Wall Street analysts projected in testimony to the Judiciary Committee, those prices are much higher than what the Treasury estimated and far higher than the widely cited and widely reported $1.10-per-pack figure. Isn't that correct?

Mr. HATCH. Now, similarly, Gary Black of Sanford C. Bernstein & Company, told the Judiciary Committee on May 12, 1998, that under the Commerce Committee bill the real price of cigarettes will exceed $5 per pack in 2003. Is the Senator aware of that?

Mr. HATCH. David Adelman of Morgan Stanley Dean Witter testified on April 30 that the 2003 average retail price will reach at least $4.53 per pack if the Commerce Committee bill is adopted. His analysis also indicates that the price under this bill that is on the floor right now could actually grow to $5.66 per pack or higher within 5 years. Is the Senator aware over that?

Mr. HATCH. Martin Feldman of Salomon Smith Barney projects in the year 2003, the Commerce Committee bill, the old bill--but the revised one is the same on the facts--will result in a real price of $4.61 per pack. In nominal terms, this means that cigarettes will cost $5.11 per pack. That is over $50 per carton. Does the Senator remember that testimony?

Mr. HATCH. All right. Now, Wall Street analysts tell us the Treasury numbers are off--way off, they say. They say that the actual price increases under the Commerce Committee bill will be much higher than what Treasury is telling us. They say the price in real dollars will climb to between $4.50 and $5 per pack in 5 years; and at least one indicated higher than $5 per pack, up to over $5.50. Is the Senator aware of that?

Mr. HATCH. Given that the price of cigarettes is about $1.95 per pack today, it looks like the Commerce Committee bill or this managers' amendment will achieve the $1.50 price hike 5 years ahead of schedule by the Treasury's own estimates. Is the Senator aware of that?

Mr. HATCH. Let me ask the Senator this. Does the Senator recall that in September the President called for, and the White House repeated again in February, bipartisan legislation that raises the price of cigarettes by up to --and that is up to --$1.50 per pack over 10 years? Does the Senator remember the President calling for that?

Mr. HATCH. That is the White House's spin here.

Mr. HATCH. That is right.

Mr. HATCH. May I ask the distinguished Senator one more question? It is this: I have sought to facilitate a thorough examination of public discussion of the Treasury model so policymakers can better understand why there is so much disparity between Wall Street and 1600 Pennsylvania Avenue on critical items like the estimates of the retail price per pack of cigarettes under the Commerce Committee bill. Is the Senator aware that we have heard the official estimate is that the Commerce Committee bill will increase the cost of a pack of cigarettes by $1.10 per pack over 5 years? Many in the press simply report that the price, not cost, will go up by just $1.10 a pack. As I understand it, and I ask the Senator to help me to know if she understands it the same way I do, the Treasury Department and the proponents of the Commerce Committee bill believe that when you take into account all other factors, you arrive at a real price in year 5 of $3.19 per pack. Although it is not a number that many of the bill's proponents seem anxious to get into public discussion, and the press is not widely reporting it in nominal terms, this is how much money you actually have to pull out of your wallet. This $3.19 per pack figure translates at the cash register price of $3.57 in the year 2003 under the White House and Treasury Department's estimates. Now, again, I ask the Senator, is the Senator aware of those facts?

Mr. HATCH. Let me just ask one other question of the distinguished Senator, because there has been some indication here that there is some sort of a game being played in this colloquy between the Senator and myself. It is anything but a game being played. We have seriously looked at these matters in 10 Judiciary Committee hearings, at which the Senator from California was in attendance. And these are important issues. I just ask the distinguished Senator, what are we going to do if we go through all of this piling on mentality, as is embodied in this managers' agreement and many of the proposed amendments thereto, and, after we get to the end of this, the bill is still constitutionally unsound? What happens if we have 10 years of litigation and the program falls apart? Isn't that some justification for finding out the facts now in order to either amend this bill or have a substitute amendment or other correctional measure? Shouldn't we really get to the heart of how to develop a constitutionally-sound bill that will help reduce teen smoking and solve some of these other problems in society? Does the Senator agree with me?

Mr. HATCH. I have to agree with the Senator. And I have to say, is the Senator aware that on May 4, 1998, testimony before the Senate Democratic Task Force on Tobacco, Robert A. Robinson, Director of Food and Drug, Agriculture Issues, Resources, Community and Economic Division of the General Accounting Office--who should surely win an award for one of the longest titles in Government--said: Smuggling cigarettes from low- to high-tax States or interstate smuggling prominent in the 1970s may be a reemerging problem. Such activity is likely to occur when the differences in cigarette taxes across the States are significant enough to make it profitable. Recently, many States have opted to sharply increase their cigarette taxes, yet most low-tax States have not. As a result, recent studies suggest that the level of interstate smuggling activity may now be increasing. In fact, recent estimates suggest that smuggling is responsible for States collectively losing hundreds of millions of dollars in annual tax revenues. Is the Senator aware of that?

Mr. HATCH. What do you think is going to happen in California and other States if that price is raised per pack from $2 to $4.50 or $5.50?

Mr. HATCH. And that jumped up when the State raised its tax by a few pennies from, I think, was it 17 cents to 34 cents or something like that.

Mr. HATCH. Nineteen percent of whom smoke. Is the Senator aware that one out of five packs of cigarettes sold in California happens to be contraband?

Mr. HATCH. Almost 34 million people, I understand.