In addition, the settlement clarifies FDA’s authority to regulate tobacco products—including regulating the level of nicotine in cigarettes—under the Food, Drug, and Cosmetic Act and requires the tobacco industry to pay for FDA’s oversight of the industry; bans all outdoor tobacco advertising and the use of cartoon characters and human figures, such as the Marlboro Man, in tobacco advertising; requires manufacturers to disclose internal research relating to the health effects of their products; establishes a minimum federal standard to restrict smoking in public places, with enforcement funding coming from the industry’s payments; settles all punitive damages claims against the tobacco industry and places limits on future class-action suits against the industry; provides for the annual payments to be reflected in the prices that manufacturers charge for tobacco products; and treats all payments as ordinary and necessary business expenses, which makes them tax-deductible. Reducing Tobacco Consumption Unlikely to Increase Nation’s Unemployment Rate

From 353,000 to 555,000 U.S. jobs are directly related to the growing, warehousing, manufacturing, wholesaling, and retailing of tobacco products, according to the studies we reviewed that examined the national and regional economic impacts of the tobacco industry. The Southeast Tobacco Region, where tobacco production is most heavily concentrated, would likely experience job losses. The estimates of total supplier-sector employment—indirect tobacco-related jobs associated with the producers of farm chemicals, paper, cellophane, and others that supply materials and services to the tobacco core sector—range from about 149,000 to about 213,000 employees. The combined estimates of tobacco-related employment associated with the supplier and expenditure-induced sectors range from about 653,000 to over 2.3 million jobs. This study also assumes that money previously spent on tobacco products would be reallocated to all goods and services in the U.S. economy in the same proportions as these goods and services currently contribute to the gross domestic product. The study also concluded that the general result does not change—that is, an overall gain in jobs nationwide—regardless of how tobacco expenditures are assumed to be reallocated. 1.) These two trends show an inverse relationship between the real price of a pack of cigarettes and the smoking rate for youths. A Tobacco Settlement Would Likely Reduce States’ Tax Revenues

National tobacco settlement legislation would likely result in a decline in state revenues from cigarette excise taxes. 2.) Scope and Methodology

We searched the literature to identify studies that assessed the national and regional economic impacts of the tobacco industry and talked to officials at USDA, the tobacco industry, and academia. Additional Information on International Cigarette Smuggling

This appendix presents information on cigarette smuggling between the United States and Canada and between the United States and Mexico. V.1.)
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed issues surrounding a proposed national tobacco settlement, focusing on: (1) tobacco-related industries and existing studies that assess the national and regional economic impacts of the tobacco industry; (2) smoking trends for United States and Canadian youths; (3) the potential effect of a settlement on state revenues from cigarette excise taxes; and (4) the extent to which interstate and international cigarette smuggling affects the United States.

What GAO Found

GAO noted that: (1) according to recent studies, from 353,000 to 555,000 jobs are directly related to the tobacco industry nationwide, including jobs in the tobacco growing, warehousing, manufacturing, wholesaling, and retailing industries; (2) according to these studies, an additional 653,000 to over 2.3 million jobs nationwide are estimated to be indirectly related to the tobacco industry; (3) this additional employment includes jobs associated with the producers that supply materials and services to the tobacco industry and jobs associated with the industries that provide goods and services to the employees of the tobacco industry and its suppliers; (4) two of the studies estimated that declining tobacco consumption--that would occur, for example, as a result of an increase in the price of a pack of cigarettes--would likely result in job losses in the tobacco growing and manufacturing industries; (5) however, it must be recognized that the money previously spent on tobacco products would not simply disappear from the nation's economy; rather it would be reallocated to other goods and services; and (6) these studies indicate that this reallocation could have little effect on national employment, although the Southeast Tobacco Region could experience job losses.