The Multinational Monitor


T H E   F R O N T

The Corporate Smokescreen

Every year, 3 million people around the world die from tobacco-related illnesses. Smoking is a major cause of heart disease and stroke, as well as cancer of the lung, bladder, pancreas, kidney, esophagus, oral cavity, larynx and cervix. In the United States, tobacco is the leading preventable cause of death, killing 419,000 people in 1991.

These statistics have been repeated with such frequency that they have virtually lost their shock value. The tobacco industry denies these figures and has managed to maintain its position through a combination of slick, specially targeted marketing and promotional campaigns on the one hand, and sly political and economic leveraging on the other. Yet the wave of attacks on the tobacco industry in the United States in recent months appears to have weakened the industry's influence.

  • In April 1994, chief executive officers of the seven major U.S. tobacco companies testified before the U.S. Congress to account for their activities. Members of Congress grilled the CEOs for over six hours.
  • Scathing reports in the major print and broadcast media have targeted the industry for altering nicotine levels to keep smokers hooked, marketing to children and suppressing research on fire-safe cigarettes.
  • Bans on cigarette advertising have been passed in a number of U.S. municipalities. Canada, which has had a ban on virtually all mass-media cigarette advertising since 1989, is now embarking on in ambitious plan to require plain packaging for cigarettes. If the law passes, cigarettes will only be sold in black and white packages with no distinctive designs other than brand name.
  • Since a January 1994 report by the Environmental Protection Agency (EPA) classified secondhand tobacco smoke as a carcinogen responsible for the deaths of about 3,000 deaths per year, at least 145 local governments have banned smoking in workplaces. In March, the Occupational Safety and Health Administration proposed a federal ban on smoking in workplaces with implementation planned as early as next year.
  • In addition to a proposed raise in federal cigarette taxes, several states have initiated cigarette tax hikes. In 1993, 15 states increased their cigarette taxes, up from six states the year before. In March 1994, despite a $3.3 million campaign by the tobacco industry to fight a tax hike, Michigan tripled its tax on cigarettes.

Fighting back

The tobacco industry as a whole has aggressively fought these developments, but the response of Philip Morris, the world's largest tobacco company, has been especially forceful.

Philip Morris, the most profitable company in the United States, is a behemoth that not only dominates the cigarette market in the United States with a market share of 45 percent, but has also become a member of the elite food sector cartel through its acquisitions of Kraft, General Foods, Maxwell House, Post and other companies [See "Philip Morris: King of the Cancer Trade," Multinational Monitor, November 1989].

The company has always denied the links between tobacco and cancer, prompting Rep. Henry Waxman, D-California and Chair of the House Energy & Commerce Committee Subcommittee on Health and the Environment, to note that this denial flies in the face "of the consensus, not by some, but all of the scientific community. At his April Subcommittee hearing, he questioned Philip Morris President and CEO William Campbell, "Will you ever be convinced [of the smoking-cancer link], and what evidence are you waiting for?"

One response from the tobacco industry to the overwhelming scientific evidence that tobacco kills will be to spend more than $4 billion in 1994 to advertise and promote its products and to gloss over the health hazards of smoking. And because 90 percent of smokers start before the age of 21 - 60 percent before the age of 14 - most of this money goes into ads and promotions geared towards children and youth. U.S. Surgeon General Jocelyn Elders has pointed to Philip Morris' Marlboro Man as a classic example of youth marketing, playing on themes of risk-taking and independence. Marlboro is the number one selling cigarette in the world and is also the number one cigarette of choice for children. The pro-America image also appeals to markets in the less-industrialized countries [See "Promoting the Tobacco Myth," Multinational Monitor, November 1993 ]. Billboards in Prague and other Eastern European cities associate Philip Morris brands with "The Way America Tastes."

Another Philip Morris response to negative Publicity has been to sue the bearers of bad news, as well as those who act to counter the dangers of smoking. In recent months, the company has sued: ABC for $10 billion, the largest defamation suit ever launched, over a news report that charged the industry with altering nicotine levels in cigarettes in order to hook smokers; the Environmental Protection Agency, over its second-hand smoke report; and the City of San Francisco, challenging its ban on smoking in workplaces.

These strong-arm tactics have drawn sharp criticism from health advocates and corporate accountability groups such as Boston-based INFACT, which has launched a campaign to "Stop the Global Tobacco Epidemic." INFACT's executive director, Elaine Lamy, notes that "Three years ago, Philip Morris sponsored the Bill of Rights' tour in the United States as champions of free speech. Now they are suing ABC for exposing how Philip Morris adds nicotine to cigarettes! These tactics are mainly intended to tie up resources and act as stalling mechanisms."

Watering the grassroots

Finding itself increasingly isolated in decision-making circles and having lost the support of key politicians and traditional allies as it becomes less publicly acceptable to support the tobacco industry, Philip Morris has also funneled more money into its lobbying efforts. The company is now the best-heeled lobby in New York State, having tripled funding for its lobbying presence last year to more than $600,000. It has doubled its statehouse lobbying staff in Washington, D.C., and has hired well-placed political operatives to represent it on Capitol Hill. In January 1992, the company welcomed Craig Fuller, former-chief of staff for George Bush, as its new senior vice-president of corporate affairs. It has hired former British Prime Minister Margaret Thatcher as a consultant, at a cost of $1 million, and has been represented by U.S. Trade Representative Mickey Kantor's former law firm. These contacts are crucial as the company lobbies Western powers to pry open the markets of Southeast Asia.

Philip Morris has also manufactured a "grassroots" campaign to influence decision-makers, enlisting the support of tobacco farmers, shareholders, and smokers. In a letter to shareholders on March 7, 1994, CEO Michael Miles urged investors to fight the proposed U.S. excise tax on tobacco that would help pay for health care reform, calling on them to -personally make your Voice heard - by writing letters to your elected officials, attending local town meetings hosted by your Congressional representatives, paying visits to an elected official's district office, sending letters to the editors of your local newspapers, and alerting your friends and families about the need to actively oppose the tax." The company also gave 8,000 employees the day o$-, with pay, and bused them to Washington, D.C. for a protest against the proposed tobacco tax increase.

Part of its campaign to tight for "smokers' rights" involved the formation in January 1994 of the National Smokers' Alliance (NSA), which includes as its advisors former Member of Congress Guy Vander Jagt, former Reagan aide Lyn Nofziger and Republican National Committee Co-Chair Jeanie Austin. Philip Morris established the group to promote "smokers' efforts to be accommodated," according to Philip Morris Director of Communications Vic Han. A letter signed by company President William Campbell sent to millions of smokers of Philip Morris brands deplored the "discrimination against those who smoke." Campbell urged smokers to join the NSA and "work to defeat the barrage of anti-smoking legislation and tax increases that we'll face this year."

"Philip Morris is doing what it can to create the `illusion' of a grassroots campaign in favor of its agenda-which mostly benefits Philip Morris," INFACT's Lamy notes. "For years, the company has been laying off workers and exploiting tobacco farmers by paying low prices and importing cheaper tobacco."

The company has been particularly active at the state level, sometimes engaging in extraordinarily cunning and deceptive maneuvers. In California, Philip Morris is backing an initiative called the California Uniform Tobacco Control Act, misleadingly touted as an anti-smoking measure. Although the act would impose "smoking restrictions in more than 200 [California] localities that currently have no regulations at all," its real purpose is to head off a bill in the legislature that would ban smoking in all workplaces and public buildings in the state, and to roll back 270 tough anti-smoking local ordinances statewide. The company has established the Californians for Statewide Smoking Restrictions to get the initiative on the ballot in November 1994. The only reference to Philip Morris on flyers supporting the initiative which the company is distributing to voters is in small print on the back of a return envelope accompanying the leaflet.

The company has even reached out for support from its subsidiaries in the food sector. General Foods President Gregory Murphy sent a letter to vendors in which he predicted a "ripple effect throughout our company and much of the economy," from tobacco taxes, suggesting that "As taxation on cigarettes reaches its upper limit, government will look to other products to tax as a convenien[t] source of new revenue. These will likely include food product[s]."

The tactics employed in recent months by Philip Morris display a sophisticated organizing strategy made possible by its dominant position in the consumer economy. "It is a classic example of how giant transnational corporations wield an inordinate amount of influence over our democratic process," Lamy notes. "It is this kind of access and power that has made cigarettes one of the least regulated consumer products in the United States."

- Aaron Freeman

Corporate Tax Politics

On April 15, 1994, while millions of U.S. citizens struggled with Byzantine forms and rising tax rates, the chieftains of the largest U.S. corporations enjoyed what is for them an increasingly benevolent Tax Code.

The tax burden on corporations, particularly large corporations, is declining while it gets tougher each year for average U.S. families to meet their tax obligations.

Individuals in 1993 have paid up to 40 percent of their income to the federal government When combined with rising local and state taxes, for many citizens this will have meant handing over 50 percent of their income to the government_ And this does not even include user fees - the hidden taxes politicians have been quickly hiking for the last decade for services such as driver's license renewals, marriage certificates or emergency medical care. The rise in these fees has greatly Outpaced the rate of inflation in recent \,cars.

Corporations, in contrast, will officially be required to pay only 35 percent of their income in federal taxes, making the U.S. corporate tax rate among the lowest in the industrial world. Many European Countries impose a 40 percent corporate tax rate; and Germany taxes corporations at a 50 percent rate.

But the percentage rate itself belies the true corporate taxation rate, because in practice corporations almost never pay the full rate, thanks to myriad loopholes unavailable to individuals. Companies can deduct rent, repairs and the infamous "business lunch." Corporations can reincorporate or move overseas to escape tax liability; they can hide assets; and it is well documented that multinational corporations frequently underreport the amount of income earned in the United States.

The Washington, D.C.-based Tax Foundation estimates that when all deductions and loopholes are accounted for, the effective federal corporate income tax rate is only 23 percent. And the corporate share of the federal government's general tax fund collection fell from 33 percent in the 1940s to 15 percent in the 1980s, where it remains today, according to Philadelphia Inquirer reporters Donald Barlett and James Steele's new book, America: Who Really Pays the Taxes?

"If corporations in 1994 paid taxes at the same rate as corporations did through the 1950s, the U.S. Treasury would collect an extra $250 billion a year," Barlett and Steele write. "That's two and one halt times as much money as corporations presently pay in taxes."

Individuals increasingly bear the burden of federal, state and local taxation because big business lobbyists have rigged the entire structure of taxation to benefit large corporations. These lobbyists swarm Capitol Hill daily, pressuring policymakers for special tax treatment for cigarette advertising, savings and loan operators and agribusiness. Each loophole adds another layer of complexity, benefiting big business at the expense of individuals and turning the Tax (ode into what President George Bush's Tax Commissioner called "a Virtually impenetrable maze." Congress has compounded the problem by enacting 10 major revisions to the Tax (ode since 1981, further diminishing respect for the system and undermining the willingness of even the most law-abiding taxpayers to properly calculate their tax burden.

When Jimmy Carter called the Tax code "a disgrace to the human race," even he didn't foresee the expansion and extension of corporate tax loopholes. An illuminating example is Section 936 of the Tax (ode, a $3 billion a year tax break for corporations that operate in the U.S. Commonwealth of Puerto Rico that allows them to take a tax credit for the amount of profit they make in that country [See "Losing Jobs to 936," Multinational Monitor, July/August 1993]. Giant U.S. pharmaceutical corporations are the principal beneficiaries of this largesse. The General Accounting Office, the investigative arm of Congress, found that the tax savings of the pharmaceutical company Pfizer was roughly $156,000 per worker, or six times the average compensation for workers at Pfizer's Puerto Rican operations. This tax dodge, while draining the Treasury, is in no way linked to the number of jobs corporations create for the depressed Puerto Rican economy.

With a multi-million dollar lobbying effort, the drug industry convinced the Clinton Administration to retain its Puerto Rican subsidy. In the battle to defend this corporate subsidy, the industry enlisted lobbying firms, law firms, former members of Congress and other wheeler-dealers. And Section 936 is only one example: the Office of Management and Budget estimates that in 1994 taxpayers will have to make up for $53.3 billion in tax breaks for corporations.

Hundreds of big companies in a broad range of industries have manipulated the tax system to extreme advantage. Barlett and Steele document some major tax-scamming corporations that have managed to keep their U.S. tax rate in the single digits and their overall tax burden below 15 Percent:

  • Royal Caribbean Cruise Lines takes in about $1 billion in gross receipts annually, and earns tens of millions in profits - but it doesn't pay a cent of U.S. income tax. Although the company and its ships arc based in Miami, it is incorporated in Liberia and registers its ships in the Bahamas, Liberia and Nom-ay. The beneficiaries of this creative scheme arc two super-rich family investors in the cruise line: the Wilhelmsens of Norway, and the Pritzkers of Chicago.
  • In 1991 and 1992, Chase Manhattan Bank reported income before taxes of $1.5 billion. On this sum, it paid $25 million in U.S. income taxes, a rate of 1.7 percent. Chase did pay $170 million in foreign taxes - bringing its overall tax rate to 13.3 percent.
  • For 1991 and 1992, Texaco reported income before taxes of $2.7 billion. It paid $237 million in U.S. income taxes, a rate of 8.8 percent, and an additional $103 million in foreign taxes, for a total global tax rate of just 12.6 percent.

And so the great corporate tax loophole machine just keeps rolling on, unchanged under an administration allegedly committed to, in the words of President Clinton, "breaking the stranglehold ... the lobbyists have on our government" Despite promises of tax reform, the so-called "Tax Freedom" day for individuals keeps moving back, meaning that if an average middle income taxpayer's 1993 salary, starting from January 1, went solely to pay taxes, it would have taken until May 3 for that taxpayer to meet all the federal, state and local pay merits due. By comparison, Tax Freedom day was March 8 in 1940, and it would have been sometime in April before the 1980s. - Carl Mayer Carl Mayer is a law professor at Hofstra College.

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