On June 20, 1997, the nation’s largest tobacco companies and attorneys general representing 40 states proposed a national settlement that, if implemented, would significantly change the way tobacco products are manufactured, marketed, and distributed in the United States. The tobacco industry agreed to pay about $368.5 billion (in 1997 dollars) over a period of 25 years—subject to consumption or volume adjustment.Annual payments would range from $8.5 billion to $15 billion. Among other things, these payments would be used to fund an extensive federal enforcement program, including a state-administered retail licensing system to stop minors from obtaining tobacco products; an annual national counter-advertising and tobacco-control campaign; a nationwide smoking cessation program; and expenditures for states’ health benefits programs. The proposed settlement would also impose substantial surcharges on the tobacco industry if underage tobacco use does not decline by at least 30 percent in 5 years, 50 percent in 7 years, and 60 percent in 10 years. 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. Many of the elements of this proposed national tobacco settlement were included in a bill introduced by the Chairman, Senate Committee on Commerce, Science, and Transportation, on November 7, 1997. Over the past several months, other Members of Congress have presented their own alternative settlement proposals. Comparing the provisions of all these various proposals is beyond the scope of this report, but we note that a common goal of many of the proposals we reviewed is to reduce smoking by youth, in part through a large increase in the price of a pack of cigarettes—ranging from 62 cents to about $2.00 per pack. On September 17, 1997, the President announced five key goals that he believes should be included in any national tobacco settlement legislation: (1) reducing smoking by teens, through, among other things, a combination of industry payments and penalties; (2) granting FDA full authority to regulate the manufacturing, marketing, and sale of tobacco products; (3) changing the way the tobacco industry does business, such as through restricting the marketing and promoting of tobacco to children, and requiring the industry to disclose scientific and health-related research; (4) addressing other related public health goals, such as promoting smoking cessation, researching the health consequences of smoking, and further restricting smoking in the workplace and in public areas; and (5) minimizing the impact of a national settlement on tobacco farmers and their communities. While the Congress has been deliberating the issue of a tobacco settlement, individual state lawsuits continue to move through the legal process, and to date, three have been settled, resulting in settlements totaling at least $28.8 billion. If there is a national tobacco settlement, some terms of these individual state settlements may be superseded. 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. These studies do not specifically address the potential economic impacts of either a national tobacco settlement or the absence of a national settlement.However, two studies—Warner’s and USDA’s—examined the potential net impact on U.S. employment if tobacco consumption were to decline, which is likely in the event of a national settlement. These two studies concluded that overall, the negative impact on U.S. employment would be offset by ex-smokers’ spending the money they previously spent on tobacco products on other, potentially more labor-intensive goods and services. However, the new jobs related to these other goods and services might be lower-paying, on average, than the tobacco-related jobs they replaced. The Southeast Tobacco Region, where tobacco production is most heavily concentrated, would likely experience job losses. The studies that we reviewed divided estimates of total tobacco-related employment into three categories—the core sector, supplier sector, and expenditure-induced sector. (See table 1.) The estimates for total core-sector employment (or direct employment) range from 353,000 to 555,000. These jobs include, for example, ones associated with the growing, warehousing, manufacturing, wholesaling, and retailing of tobacco products. 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. In addition, the income earned by tobacco growers, manufacturers, suppliers, and others is spent on a variety of consumer goods and services that generate additional revenue for a wide range of industries throughout the U.S. economy. The estimates of employment associated with this expenditure-induced sector range from about 504,000 to about 2.3 million jobs. 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. Overall, according to the studies we reviewed, tobacco-related employment totals from about 1.2 million to 3.1 million jobs nationwide. (For more detailed information on tobacco-related employment by industry, see app. I, tables I.1, I.2, and I.3.) The estimates shown in table 1 indicate the total number of jobs (or gross impact) associated with the production and sales of U.S. tobacco products. However, if tobacco consumption were to fall, according to Warner’s and USDA’s studies, the money previously spent on tobacco products would be spent on other consumer goods and services, and, therefore, employment in other sectors would rise, offsetting part or all of the employment decline in the tobacco industry. Warner estimated the impact of decreasing tobacco consumption under two scenarios. (See table 2.) The first scenario assumes that all domestic spending on tobacco stops immediately (which is unlikely in the absence of an outright tobacco ban), while the second scenario assumes that annual domestic spending on tobacco decreases at twice the current rate, or at about 4 percent. 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. As table 2 shows, under the first scenario, the U.S. economy would gain 133,000 jobs nationwide over a 7-year period and about 20,000 jobs under the second scenario. Job losses in the retail and wholesale trade, farm, manufacturing, and government sectors would be more than made up by job gains in the services and other private industry sectors. Warner explained the reason for this net gain by suggesting that most of the industries that produce the products that would replace tobacco are more labor intensive than the tobacco industry. However, because 91 percent of tobacco farming and manufacturing jobs are located in the Southeast Tobacco Region, this region could suffer net job losses in all sectors of the economy. These total losses are likely to be less than 1 percent of the region’s total employment. (For more detailed information see app. I, tables I.4 and I.5.) In 1995, USDA also estimated the net impact of immediately ending domestic tobacco consumption. Under a scenario that USDA examined, the money currently spent on tobacco products would be reallocated to snack food and beverage products, and the U.S. economy would gain 156,000 jobs nationwide—a result similar to that of Warner’s scenario described above. USDA’s study concluded that jobs in tobacco farming and tobacco manufacturing would be reduced considerably. However, the industries that produce the products that would replace tobacco are more labor-intensive, although, on average, lower paying, and thereby would more than offset the job losses resulting from reductions in tobacco consumption. 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. Although numerical results were not presented specifically for the Southeast Tobacco Region, USDA noted that Kentucky, North Carolina, Tennessee, and Virginia would lose tobacco farming and manufacturing jobs. According to a 1997 University of Michigan survey, in 1977, about 29 percent of 12th-graders smoked daily. This level decreased to about 17 percent by 1992 and then rose to about 25 percent in 1997. The recent increase in smoking probably occurred because the upward trend in real cigarette prices ceased. The most recent estimates indicate that an increase in the price of cigarettes leads to a drop in the smoking rate for youths. The data available on smoking behavior for Canadian youths indicate a trend that is consistent with that shown for the United States. Studies indicate that increases in the real price of a pack of cigarettes contribute to decreases in the percentage of U.S. youths who smoke daily. According to the University of Michigan survey, from 1977 through 1992, the percentage of U.S. 12th-graders smoking daily generally declined from about 29 percent in 1977 to about 17 percent in 1992. (See fig. 1.) However, since 1992, the smoking rate has risen significantly, to about 25 percent in 1997.