The New Tax Policy: Max the Tax on Lower Income Individuals; Recruit New Smokers to Pay for Government Health Program

Jul 16, 2007, 01:00 ET from Reynolds American Inc.

    WINSTON-SALEM, N.C., July 16 /PRNewswire-FirstCall/ -- The Senate
 Finance committee is considering funding a $35 billion expansion of the
 State Children's Health Insurance Program (SCHIP) by increasing the federal
 excise tax on cigarettes by 156 percent.
     (Photo: http://www.newscom.com/cgi-bin/prnh/20070716/CLM125)
     "Proponents of this tax aren't comfortable acknowledging that
 government makes more money from the sale of cigarettes than any entity
 actually engaged in the tobacco business," said Tommy J. Payne, executive
 vice president of public affairs for Reynolds American Inc., the parent
 company of four tobacco companies. "They are equally uncomfortable
 acknowledging this tax will primarily hit low- and middle-income
 individuals, and that in order to generate the revenue they want to expand
 this government program, they need people to smoke," he said.
     On July 11, 2007, The Heritage Foundation issued an analysis finding
 that 9 million additional smokers would be needed to fund the SCHIP program
 over the next five years, and that 22.4 million additional smokers would be
 required to fund the program by 2017.
     "Policy makers will somehow need to recruit new smokers if they insist
 on using the tobacco tax revenue to support SCHIP at proposed funding
 levels over the long term," wrote Heritage Foundation authors Michelle C.
 Bucci and William W. Beach.
     "Congress Needs You To Smoke" is the headline of an ad Reynolds
 American will run in Roll Call on Tuesday, July 17. The ad features Uncle
 Sam graphics and highlights from the Heritage Foundation study. (Copy of ad
 attached and also available on http://www.reynoldsamerican.com.)
     "This is the latest example of government tossing any semblance of fair
 tax policy out the window," Payne said. "Congress is turning a blind eye
 not only to who really pays cigarette taxes, but how much they are already
 paying.
     "More than half the price of a pack of cigarettes already goes to the
 government," Payne said. "Smokers paid nearly $33 billion in taxes and
 settlement payments in 2006. Keep in mind that the median household income
 for smokers is less than $34,500."
     Other public policy considerations of the 156 percent increase in the
 federal cigarette tax include:
     -- States could lose up to $1 billion in tax and Master Settlement
        Agreement (MSA) revenue.  Cigarette excise taxes are a major source of
        revenue for state governments, and a sharp increase in the federal tax
        is expected to cut into that revenue by decreasing legal cigarette
        sales.
 
     -- Criminal activity involving the theft and reselling of cigarettes has
        risen as a result of individual states raising their taxes on
        cigarettes and could increase with a federal tax hike, further
        jeopardizing the safety of everyone from truck drivers to convenience
        store workers.
     "Congress should recognize that using cigarette taxes to expand a
 government program like SCHIP is a classic definition of bad public
 policy," Payne said.
     ABOUT US
     Reynolds American Inc. (NYSE:   RAI) is the parent company of R.J.
 Reynolds Tobacco Company; Conwood Company, LLC; Santa Fe Natural Tobacco
 Company, Inc; and R.J. Reynolds Global Products, Inc.
     -- R.J. Reynolds Tobacco Company, the second-largest U.S. tobacco company,
        manufactures about one of every three cigarettes sold in the country.
        The company's brands include six of the 10 best-selling U.S. brands:
        Camel, Kool, Pall Mall, Winston, Salem and Doral.
 
     -- Conwood Company, LLC is the nation's second-largest manufacturer of
        smokeless tobacco products.  Its leading brands are Kodiak, Grizzly and
        Levi Garrett.  Conwood also sells and distributes a variety of tobacco
        products manufactured by Lane, Limited, including Winchester and
        Captain Black little cigars, and Bugler roll-your-own tobacco.
 
     -- Santa Fe Natural Tobacco Company, Inc. manufactures Natural American
        Spirit cigarettes and other additive-free tobacco products.
 
     -- R.J. Reynolds Global Products, Inc. manufactures, sells and distributes
        American-blend cigarettes and other tobacco products to a variety of
        customers worldwide.
     Copies of RAI's news releases, annual reports, SEC filings and other
 financial materials are available at http://www.ReynoldsAmerican.com.
 
 

SOURCE Reynolds American Inc.
    WINSTON-SALEM, N.C., July 16 /PRNewswire-FirstCall/ -- The Senate
 Finance committee is considering funding a $35 billion expansion of the
 State Children's Health Insurance Program (SCHIP) by increasing the federal
 excise tax on cigarettes by 156 percent.
     (Photo: http://www.newscom.com/cgi-bin/prnh/20070716/CLM125)
     "Proponents of this tax aren't comfortable acknowledging that
 government makes more money from the sale of cigarettes than any entity
 actually engaged in the tobacco business," said Tommy J. Payne, executive
 vice president of public affairs for Reynolds American Inc., the parent
 company of four tobacco companies. "They are equally uncomfortable
 acknowledging this tax will primarily hit low- and middle-income
 individuals, and that in order to generate the revenue they want to expand
 this government program, they need people to smoke," he said.
     On July 11, 2007, The Heritage Foundation issued an analysis finding
 that 9 million additional smokers would be needed to fund the SCHIP program
 over the next five years, and that 22.4 million additional smokers would be
 required to fund the program by 2017.
     "Policy makers will somehow need to recruit new smokers if they insist
 on using the tobacco tax revenue to support SCHIP at proposed funding
 levels over the long term," wrote Heritage Foundation authors Michelle C.
 Bucci and William W. Beach.
     "Congress Needs You To Smoke" is the headline of an ad Reynolds
 American will run in Roll Call on Tuesday, July 17. The ad features Uncle
 Sam graphics and highlights from the Heritage Foundation study. (Copy of ad
 attached and also available on http://www.reynoldsamerican.com.)
     "This is the latest example of government tossing any semblance of fair
 tax policy out the window," Payne said. "Congress is turning a blind eye
 not only to who really pays cigarette taxes, but how much they are already
 paying.
     "More than half the price of a pack of cigarettes already goes to the
 government," Payne said. "Smokers paid nearly $33 billion in taxes and
 settlement payments in 2006. Keep in mind that the median household income
 for smokers is less than $34,500."
     Other public policy considerations of the 156 percent increase in the
 federal cigarette tax include:
     -- States could lose up to $1 billion in tax and Master Settlement
        Agreement (MSA) revenue.  Cigarette excise taxes are a major source of
        revenue for state governments, and a sharp increase in the federal tax
        is expected to cut into that revenue by decreasing legal cigarette
        sales.
 
     -- Criminal activity involving the theft and reselling of cigarettes has
        risen as a result of individual states raising their taxes on
        cigarettes and could increase with a federal tax hike, further
        jeopardizing the safety of everyone from truck drivers to convenience
        store workers.
     "Congress should recognize that using cigarette taxes to expand a
 government program like SCHIP is a classic definition of bad public
 policy," Payne said.
     ABOUT US
     Reynolds American Inc. (NYSE:   RAI) is the parent company of R.J.
 Reynolds Tobacco Company; Conwood Company, LLC; Santa Fe Natural Tobacco
 Company, Inc; and R.J. Reynolds Global Products, Inc.
     -- R.J. Reynolds Tobacco Company, the second-largest U.S. tobacco company,
        manufactures about one of every three cigarettes sold in the country.
        The company's brands include six of the 10 best-selling U.S. brands:
        Camel, Kool, Pall Mall, Winston, Salem and Doral.
 
     -- Conwood Company, LLC is the nation's second-largest manufacturer of
        smokeless tobacco products.  Its leading brands are Kodiak, Grizzly and
        Levi Garrett.  Conwood also sells and distributes a variety of tobacco
        products manufactured by Lane, Limited, including Winchester and
        Captain Black little cigars, and Bugler roll-your-own tobacco.
 
     -- Santa Fe Natural Tobacco Company, Inc. manufactures Natural American
        Spirit cigarettes and other additive-free tobacco products.
 
     -- R.J. Reynolds Global Products, Inc. manufactures, sells and distributes
        American-blend cigarettes and other tobacco products to a variety of
        customers worldwide.
     Copies of RAI's news releases, annual reports, SEC filings and other
 financial materials are available at http://www.ReynoldsAmerican.com.
 
 SOURCE Reynolds American Inc.