Daily Doc: PM, Sep 3, 1987: Tax Increases, Teen Smoking and Beetles
Daily Doc: Tax Increases, Teen Smoking and Beetles
Title: Handling an Excise Tax Increase
PM, Sep 3, 1987
Bates #: 2022216179/6180
February 10, 2001
This insightful Philip Morris (PM) memo discusses how the company should handle a significant excise tax increase on cigarettes. Of course the answer was to pass it on to customers, but the astonishing revelation is that PM executives knew fully well--in 1987 (and no doubt to this day)--that raising taxes on cigarettes (or a price increase in general) is a proven means of keeping teens from starting to smoke. This was something Philip Morris clearly considered a detriment (despite current PM rhetoric of not wanting kids to smoke):
"Last time, of course, we increased prices five times between February of 1982 and January of 1983.....and this fact was not lost on consumers....the 1982-83 round of price increases caused two million adults to quit smoking and prevented 600,000 teenagers from starting to smoke. Those teenagers are now 18-21 years old, and since about 70 percent of 18-21 year olds and 35 percent of older smokers smoke a PM brand, this means that 700,000 of those adult quitters had been PM smokers and 420,000 of the non-starters would have been PM smokers. Thus, if Harris is right, we were hit disproportionately hard. We don't need to have that happen again."
This document also reveals that people are regularly smoking worm/beetle larvae in their cigarettes. The writer suggests that the company urge their smokers to stock up on cigarettes before the tax increase, but also that the company urge smokers to refrigerate their cigarette supply under the guise of "preserving their freshness." In reality, it's to keep beetles from emerging from the tobacco:
"...suggest that people stock up to avoid the price increase, and recommend that they refrigerate their cigarettes to 'preserve their freshness.' (It would be necessary to emphasize that point or we would get a lot of beetle complaints.)"
CITATION
Title: Handling an Excise Tax Increase
Type of Document: Memorandum
Author: Myron Johnston, Philip Morris
Recipient: Jon Zoler, Philip Morris
Date: 19870903
Site: Tobacco Documents Online www.tobaccodocuments.org [Minnesota Trial Exhibits, or MNTE set]
Page Count 2
Bates No. 2022216179/6180
URL: http://www.tobaccodocuments.org/view.cfm?docid=TE11591&source=MNTE&ShowImages=yes
Litigation Usage: Minnesota Trial Exhibit #11,591
Search Criteria: "Teen*" on the TDO site, Minnesota Trial Exhibit set (MNTE)
QUOTES
I have been asked for my views as to how we should pass on the price increase in the event of an increase in the excise tax. My choice is to...[p]ass on the increase in one fell swoop and make it clear to smokers that the government is solely responsible for the price increase, advertise to that effect, suggest that people stock up to avoid the price increase, and recommend that they refrigerate their cigarettes to "preserve their freshness." (It would be necessary to emphasize that point or we would get a lot of beetle complaints.) Then when people exhaust their supply and go to the store to by more, they will be less likely to remember what they last paid and will be less likely to suffer "sticker shock." As a result, they should be less likely to use the price increase as an incentive to stop smoking or reduce their consumption.
Last time, of course, we increased prices five times between February of 1982 and January of 1983. In less than a year the price went from $20.20 to $26.90 per thousand...and this fact was not lost on consumers....You may recall from the article I sent you that Jeffrey Harris of MIT calculated...that the 1982-83 round of price increases caused two million adults to quit smoking and prevented 600,000 teenagers from starting to smoke. Those teenagers are now 18-21 years old, and since about 70 percent of 18-21 year olds and 35 percent of older smokers smoke a PM brand, this means that 700,000 of those adult quitters had been PM smokers and 420,000 of the non-starters would have been PM smokers. Thus, if Harris is right, we were hit disproportionately hard. We don't need to have that happen again.
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