I'M ALSO GLAD, SENATOR, THAT YOU'RE MENTIONING THIS BECAUSE ONE
           OF THE MOST DISCOURAGING THINGS HERE HAS BEEN THE RUSH TO
           JUDGMENT, HAS BEEN THE FEELING FROM MANY PEOPLE VERY
           WELL-MEANING, VERY MUCH WANTING TO SEE LEGISLATION IN PLACE,
           THAT IF YOU PAUSE TO CONSIDER THESE IMPACTS, SOMEHOW YOU'RE
           UN-AMERICAN, SOMEHOW YOU'RE PROTOBACCO. AND, YET, AS WE KNOW,
           THE DEVIL'S IN THE DETAILS WITH ALL OF THESE THINGS. AND IT

           REALLY IS THE LONG-TERM EFFECT OF A BILL THAT WE NEED TO
           CONSIDER HERE CAREFULLY. AND THAT'S ONE OF THREASONS I HAVE
           BEEN, FRANKLY, OPPOSED TO THE SPEED WITH WHICH THIS BILL IS
           BEING PUSHED. AND I THINK IT'S BEING PUSHED SO THAT WE DON'T
           HAVE THIS INFORMATION IN FRONT OF US, SO THAT WE DON'T
           UNDERSTAND THE REPERCUSSIONS AND SO THAT A BILL GETS PASSED AND
           EVERYBODY CAN POUND THEIR CHEST AND SAY WHAT A WONDERFUL JOB
           WE'VE DONE AND THEN, BOOM, IN FOUR YEARS THERE CAN BE A

           CATACLYSMIC EVENT LIKE A BIG BLACK MARKET OPERATION.
           

           MR. HATCH: LET ME JUST ASK ONE OTHER QUESTION OF THE
           DISTINGUISHED SENATOR BECAUSE THERE'S BEEN SOME INDICATION HERE
           THAT THERE IS SOME SORT OF A GAME BEING PLAYED IN THIS COLLOQUY
           BETWEEN THE SENATOR AND MYSELF. ANYTHING BUT A GAME BEING
           PLAYED. WE'VE SERIOUSLY LOOKED AT THESE MATTERS THROUGH TEN
           JUDICIARY COMMITTEE HEARINGS AT WHICH THE SENATOR FROM
           CALIFORNIA WAS IN ATTENDANCE. AND THESE ARE IMPORTANT ISSUES.
           I'D JUST ASK THE DISTINGUISHED SENATOR, IS IT NOT TRUE THAT IF

           WE GO THROUGH ALL OF THIS PILING-ON MENTALITY BILL, THIS
           MANAGERS' AGREEMENT, AND WE GET TO THE END OF THIS AND IT'S
           STILL CONSTITUTIONALLY UNSOUND, AND WE'RE GOING TO HAVE TEN
           YEARS OF LITIGATION, THAT THERE IS SOME JUSTIFICATION FOR
           FINDING OUT THE FACTS NOW AND TALKING ABOUT THESE PROBLEMS NOW
           IN ORDER TO MAYBE EITHER AMEND THIS BILL OR HAVE A SUBSTITUTE
           AMENDMENT OR SOMETHING THAT WILL CORRECT IT AND HELP US TO GO
           ABOUT OUR BUSINESS IN A WAY THAT WILL HELP REDUCE TEEN SMOKING
           AND SOLVE SOME OF THESE OTHER PROBLEMS IN SOCIETY?
           DOES THE SENATOR AGREE WITH ME?
           
           

           MRS. FEINSTEIN: WELL, THAT'S ABSOLUTELY CORRECT, SENATOR. NOT
           ONLY ARE WE NOT PLAYING A GAME. CERTAINLY NO ONE IN THIS BODY
           HAS ASKED ME REPRESENTING THE STATE WHAT WOULD BE THE IMPACT OF
           A BILL ON THE LARGEST STATE IN THE UNION, WITH THE MOST SMOKERS
           BY FAR IN CALIFORNIA, WITH THE MOST YOUNG PEOPLE. YOU KNOW, I
           CAME TO THIS BODY TO USE MY BRAIN TO TRY TO WORK FOR MY STATE
           AND TRY TO SEE THAT WHATEVER IT IS THAT I VOTE FOR DOESN'T HAVE

           UNINTENDED CONSEQUENCES. AND, SO, ALL I THINK THE PURPOSE OF
           THIS COLLOQUY IS TO SAY IS THAT THERE MAY VERY WELL BE SERIOUS
           UNINTENDED CONSEQUENCES HEIGHTENED BY THE FACT THAT WE ARE
           MOVING SO FAST WITHOUT ANY MAJOR GOVERNMENTAL ANALYSIS OF THE
           LONG-TERM PER-PACK COSTS AND WHAT THOSE COSTS MIGHT DO WHEN YOU
           MEASURE ELASTICITY, DIMINISHED MARKET DEMAND AND A DIMUNITION

           OF NICOTINE IN A REGULATORY ORDER BY THE F.D.A. SO, THESE ARE
           VERY SERIOUS THINGS. I THINK THEY DESERVE CONSIDERATION. AND I
           THANK YOU VERY MUCH.
           

           MR. HATCH: COULD I ASK THE DISTINGUISHED SENATOR ONE MORE
           
           QUESTION, AND THAT'S THIS: YOU KNOW, I'VE SOUGHT TO FACILITATE
           A THOROUGH EXAMINATION AND PUBLIC DISCUSSION OF THE TREASURY
           MODEL, SO POLICY-MAKERS CAN BETTER UNDERSTAND WHY THERE IS SO
           MUCH DISPARITY BETWEEN WALL STREET AND 1600 PENNSYLVANIA AVENUE
           ON CRITICAL ITEMS LIKE THE ESTIMATES OF THE RETAIL PRICE PER
           PACK OF CIGARETTES UNDER THE COMMERCE COMMITTEE BILL. IS THE
           SENATOR AWARE THAT WE'VE HEARD THE OFFICIAL ESTIMATE IS THAT
           THE COMMERCE COMMITTEE BILL WILL INCREASE THE COST OF A PACK OF

           CIGARETTES BY $1.10 PER PACK OVER FIVE YEARS. MANY IN THE PRESS
           SIMPLY REPORT THAT THE PRICE, NOT COST, WILL GO UP BY THIS
           $1.10 A PACK. NOW, AS I UNDERSTAND IT, AND I ASK THE SENATOR TO
           HELP ME TO KNOW IF SHE UNDERSTANDS IT THE SAME WAY I DO --
           THAT'S THE QUESTION I HAVE. THE TREASURY DEPARTMENT AND THE
           PROPONENTS OF THE COMMERCE COMMITTEE BILL BELIEVE THAT WHEN YOU
           TAKE INTO ACCOUNT ALL OTHER FACTORS, YOU ARRIVE AT A REAL PRICE
           IN YOUR YEAR FIVE OF $3.19 PER PACK. ALTHOUGH IT IS NOT A

           NUMBER THAT MANY OF THE BILL'S PROPONENTS SEEM ANXIOUS TO GET
           INTO PUBLIC DISCUSSION AND THE PRESS IS NOT WIDELY REPORTING IT
           IN NOMINAL TERMS, AND THIS IS HOW MUCH MONEY YOU ACTUALLY WILL
           HAVE TO PULL OUT OF YOUR WALLET, THIS $3.19 PER PACK TRANSLATES
           INTO AT THE CASH REGISTER PRICE OF $3.57 IN THE YEAR 2003 UNDER
           THE WHITE HOUSE AND THE TREASURY DEPARTMENT'S ESTIMATES. NOW,
           AGAIN, I ASK THE SENATOR, IS THE SENATOR AWARE OF THOSE FACTS?
           
           

           MRS. FEINSTEIN: ACTUALLY, SENATOR, THOSE ARE NOT THE FACTS --
           THEY MAY BE THE FACTS COMING OUT OF THE WHITE HOUSE.
           

           MR. HATCH: THAT'S RIGHT.
           

           MRS. FEINSTEIN: BUT THE FACTS WE HEARD IN COMMITTEE --
           

           MR. HATCH: ARE YOU AWARE THAT'S THE WHITE HOUSE SPIN HERE?
           
           

           MRS. FEINSTEIN: YES.
           

           MR. HATCH: I THINK YOU WILL RECALL -- DOES THE SENATOR RECALL
           THAT IN SEPTEMBER THE PRESIDENT CALLED FOR AND THE WHITE HOUSE
           REPEATED AGAIN IN FEBRUARY BIPARTISAN LEGISLATION THAT RAISES
           THE PRICE OF CIGARETTES BY UP TO -- AND THAT'S UP TO $1.50 PER
           PACK OVER TEN YEARS?
           DOES THE SENATOR REMEMBER THE PRESIDENT CALLING FOR THAT?
           
           

           MRS. FEINSTEIN: I DO.
           

           MR. HATCH: GIVEN THAT THE PRICE OF A PACK OF CIGARETTES IS
           ABOUT $1.95 PER PACK TODAY, IT LOOKS LIKE THE COMMERCE
           COMMITTEE BILL, OR THIS MANAGERS' AMENDMENT WILL ACHIEVE THE
           $1.50 PRICE HIKE FIVE YEARS AHEAD OF SCHEDULE. IS THE SENATOR
           AWARE OF THAT?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT, YES.
           

           MR. HATCH: NOW WITH THE FINANCE COMMITTEE AMENDMENT -- BUT WALL
           STREET ANALYSTS TELL US THAT THE TREASURY NUFMS ARE OFF, WAY
           OFF, THEY SAY. THEY SAY THAT THE ACTUAL PRICE INCREASES UNDER
           THE COMMERCE COMMITTEE BILL WILL BE MUCH HIGHER THAN WHAT
           TREASURY IS TELLING US. THEY SAY THE PRICE IN REAL DOLLARS WILL
           CLIMB TO BETWEEN $4.50 AND $5 PER PACK IN FIVE YEARS AND AT
           LEAST ONE INDICATED HIGHER THAN $5 PER PACK, UP TO OVER $5.50.
           IS THE SENATOR AWARE OF THAT?
           
           

           MRS. FEINSTEIN: I AM.
           

           MR. HATCH: MARTIN FELDMAN PROJECTS IN 2003, THE COMMERCE
           COMMITTEE BILL, THE OLD BILL, WILL RESULT IN A REAL PRICE OF
           $4.61 PER PACK. IN NOMINAL TERMS, THIS MEANS THAT CIGARETTES
           WILL COST $5.11 PER PACK. THAT'S OVER $50 PER CARTON. DOES THE
           SENATOR REMEMBER THAT TESTIMONY?
           
           

           MRS. FEINSTEIN: I BELIEVE YOU'RE ACCURATELY REFLECTING THE
           TESTIMONY.
           

           MR. HATCH: DAVID EDELMAN TESTIFIED AT OUR HEARING ON APRIL 30
           THAT THE 2003 AVERAGE RETAIL PRICE WILL REACH AT LEAST $4.53
           PER PACK IF THE COMMERCE COMMITTEE BILL, OR THE MANAGERS'
           AMENDMENT IS ADOPTED. HIS ANALYSIS ALSO INDICATES THAT THE
           PRICE UNDER THE THIS BILL THAT'S ON THE FLOOR RIGHT NOW CAN
           ACTUALLY GROW TO $5.66 PER PACK OR HIGHER WITHIN FIVE YEARS. IS THE SENATOR AWARE OF THAT?
           
           

           MRS. FEINSTEIN: YES.
           

           MR. HATCH: SIMILARLY, GARY BLACK OF STANFORD C. BERNSTEIN AND
           COMPANY -- AND HE DID THIS STUDY WITH OTHERS, AND I KNOW
           THERE'S BEEN CRITICISM OF HIM AS A LOBBYIST FOR THE TOBACCO
           COMPANY. NEVERTHELESS, BERNSTEIN AND COMPANY IS A REPUTABLE
           COMPANY. HE TOLD THE JUDICIARY COMMITTEE ON MAY 12, 1998, THAT
           UNDER THE COMMERCE COMMITTEE BILL THE REAL PRICE OF CIGARETTES
           EXCEED $5 PER PACK IN 2003. SENATOR AWARE OF THAT?
           
           

           MRS. FEINSTEIN: ABSOLUTELY. AND THE POINT THAT YOU'RE MAKING IS
           REALLY REFLECTIVE OF THE POINT THAT I'M TRYING TO MAKE IN A
           LESS ERUDITE WAY. AND THAT POINT IS LET'S TAKE THE TIME TO HAVE
           A C.R.S. ANALYSIS, A C.B.O. AN SIS -- ANALYSIS, JOINT TAX
           SCORING ON SOME OF THE FIGURES THAT YOU'RE PUTTING FORWARD
           BECAUSE THESE ARE FIGURES THAT HAVE BEEN PRESENTED TO US IN A
           FORMAL WAY.
           

           MR. HATCH: I WOULD ASK THE SENATOR IF SHE'S AWARE -- LET ME
           EMPHASIZE THAT THE $4.50 TO $5 PER PACK PRICES THAT THESE
           LEADING WALL STREET ANALYSTS PROJECTED IN TESTIMONY TO THE
           JUDICIARY COMMITTEE, THOSE PRICES ARE MUCH HIGHER THAN WHAT THE
           TREASURY HAS ESTIMATED. AND THEY ARE FAR HIGHER THAN THE WIDELY
           CITED AND WIDELY REPORTED $1.10-PER-PACK FIGURE FIGURE. ISN'T
           THAT CORRECT?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT. ONE OF THE REASONS I DON'T
           KNOW WHO TO BELIEVE.
           

           MR. HATCH: FAR HIGHER THAN THE $1.50 PER PACK INCREASE THAN
           WHAT THE PRESIDENT CALLED FOR OVER A TEN-YEAR PERIOD; IS THAT
           RIGHT?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT.
           

           MR. HATCH: IF THESE WALL STREET ANALYSTS ARE CORRECT AND THE
           TREASURY ESTIMATES ARE OFF IN YEAR FIVE UNDER THE COMMERCE
           COMMITTEE BILL WE MAY REACH A PRICE INCREASE THAT IS TWICE AS
           HIGH THAN WHAT THE PRESIDENT CALLED FOR. THAT IS A $3 PER PACK
           PRICE INCREASE RATHER THAN $1.50 PRICE INCREASE. THIS IS A FAR
           CRY FROM THE $1.10 WE HEAR SO MUCH ABOUT. ISN'T THAT SO?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT.
           

           MR. HATCH: LET ME FIN THIRB THIS. WHAT'S MORE, WE WILL REACH
           THIS TWICE AS HIGH LEVEL TWICE AS FAST AS CALLED FOR BY THE
           PRESIDENT. WE WILL REACH THIS $5 PER PACK LEVEL IN YEAR FIVE,
           NOT YEAR TEN. I GUESS WE SHOULD ASK WHETHER THE AMERICAN PUBLIC
           UNDERSTANDS THAT WHAT WE MAY ACTUALLY BE TALKING ABOUT UNDER
           THE COMMERCE COMMITTEE BILL IS A $50 PER CARTON PRICE FOR
           CIGARETTES. NOW IF YOU'RE LIKE ME AND DON'T AND WON'T EVER
           SMOKE, THIS MAY NOT SEEM SO BAD. LITERALLY. BUT I JUST HOPE

           THAT THE PUBLIC HEALTH LOBBY DOESN'T NEXT FOCUS ITS ATTENTION
           ON THE PROBLEM OF OBESITY OR WE MAY HAVE CHOCOLATE ICE CREAM AT
           $20 A GALLON. A $10 PACKAGE OF POTATO CHIPS OR $5 SLICE OF
           APPLE PIE SOLD BY PRESCRIPTION, NO DOUBT IF WE CONTINUE TO
           FOLLOW THIS TYPE OF BUREAUCRATIC REASONING. IS THE SENATOR IN
           DISAGREEMENT WITH ME ON THIS?
           
           

           MRS. FEINSTEIN: MY POINT IS, SENATOR, I DON'T REALLY KNOW WHO
           TO BELIEVE, AND THAT'S WHY I'M WHERE I AM WITH RESPECT TO THIS
           BILL. DIFFERENT COMMITTEES HAVE HAD DIFFERENT TESTIMONY. I
           DON'T KNOW WHETHER THE FINANCE AND THE COMMERCE COMMITTEE
           ACTUALLY HAD THIS TESTIMONY. WE HAD IT IN THE JUDICIARY
           COMMITTEE. WHEN I BINE THAT WITH WHAT I KNOW ABOUT WHAT'S
           HAPPENING IN CALIFORNIA, I HAVE TO SIT BACK AND SAY, WHOA,
           DIANE, YOU BETTER KNOW WHAT YOU'RE DOING BEFORE YOU VOTE FOR
           THIS BILL.
           

           MR. HATCH: THE SENATOR IS VERY CONCERNED, AS AM I. IS THE
           SENATOR AWARE THAT THE $1.10 PRICE AS SO WIDELY REPORTED IN THE
           MEDIA AS THE ADD-ON TO THE CURRENT $1.95 OR $2 PER PACK PRICE,
           THAT THAT'S AT THE MANUFACTURERS' LEVEL?
           THAT DOESN'T INCLUDE A WHOLE WIDE VARIETY OF FACTORS LIKE THE
           WHOLESALE COSTS, THE RETAIL COSTS THAT ARE ALL ADD-ONS,

           ADDITIONAL EXCISE TAXES ADDED ON BY THE STATES, TAXES THAT ARE
           GOING TO BE ADDED ON, THE TOBACCO COMPANIES ARE GOING TO HAVE
           TO COME UP WITH IN ORDER TO PAY FOR SOME OF THESE STATE
           LITIGATIONS THEY'VE GOT AND A WHOLE RAFT OF OTHER MATTERS THAT
           ACTUALLY GET THE PRICES UP TO $5-PLUS PER PACK OF CIGARETTES
           WITHIN FIVE YEARS UNDER THIS BILL. SO, SENATOR -- AND I MIGHT
           ADD THAT THE LOOK-BACK PENALTIES HAVE TO BE TAKEN INTO
           CONSIDERATION. WHAT ARE THE ADDED COSTS ARE GOING TO BE CHARGED

           ON A PACK OF CIGARETTES FOR THE LOOK-BACK PENALTIES. THE
           ATTORNEYS' FEES ARE GOING TO BE ADDED TO THE COST OF
           CIGARETTES. SO, IT'S PRETTY CLEAR THAT IT'S A LOT HIGHER THAN
           WHAT THE MEDIA IS REPORTING AS $1.10. IT'S A LOT HIGHER, ISN'T
           IT, THAN WHAT THE WHITE HOUSE HAS INDICATED. AND I WILL JUST
           ASK THE
           
           SENATOR THIS QUESTION: ISN'T IT PLAUSIBLE TO BELIEVE THESE WALL
           STREET ANALYSTS WHOSE VERY PURPOSE IS TO TRY TO ARRIVE AT

           CORRECT ECONOMIC FIGURES SO THEY CAN PROPERLY ADVISE PEOPLE WHO
           ARE WILLING OR NOT WILLING TO INVEST THEIR MONEYS IN THESE
           MATTERS?
           AND WHERE THEY HAVE EXTENSIVE MODELS RATHER THAN JUST A
           FIVE-LINE SHEET OF PAPER?
           
           

           MRS. FEINSTEIN: WELT, I THINK THAT'S RIGHT. I THINK -- WELL, I
           THINK THAT'S RIGHT. I THINK WHAT'S HAPPENED IS WE'VE SEEN A NET
           FIGURE APPLIED AS A GROSS FIGURE WHEN IN FACT IT'S JUST A
           BEGINNING FIGURE. IT BECOMES AN ARBITRARY COST ADDED, AND THEN
           THERE ARE ALL THESE OTHER COSTS THAT COME ON TOP THAT AREN'T
           FACTORED IN. AND I THINK THAT'S WHY WE NEED A VERY THOROUGH
           OBJECTIVE REPORT ON WHAT ACTUAL STREET PRICES OF CIGARETTES

           WILL BE. WHAT YOU GET THEM FOR IN YOUR 7-11, WHAT YOU BUY THEM
           FOR IN YOUR SUPERMARKET, WHAT IT WILL BE WITH INFLATED DOLLARS
           IN FIVE YEARS. AND IF WE KNOW THAT WI SPECIFICITY, THEN I THINK
           WE CAN MAKE SOME INFORMED JUDGMENTS AS TO WHETHER IN EACH OF
           OUR RESPECTIVE STATES THIS IS APT TO CREATE A BLACK MARKET OR
           NOT APT TO CREATE A BLACMARKET. WE THEN CAN RELATE THIS DATA TO
           THE DISTRIBUTION TABLE THAT JOINT TAX HAS DONE SO YOU KNOW WHAT

           PORTION OF THIS FALLS ON THE LOWEST-INCOME PEOPLE VERSUS THE
           HIGHEST-INCOME PEOPLE.
           

           MR. HATCH: ISN'T -- THIS WILL BE MY LAST QUESTION. IS IT NOT
           TRUE THAT UNDER THE SUBSTITUTE THAT THE DISTINGUISHED SENATOR
           FROM CALIFORNIA AND I ARE WORKING ON THAT WE DON'T BASE THIS ON
           A PRICE-PER PACK OF CIGARETTES, OUR $428.5 BILLION. WE BASE IT
           ON PAYMENTS THAT HAVE TO BE MADE OVER 25 YEARS?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT.
           

           MR. HATCH: WHETHER THE COMPANIES HAVE -- WHETHER THEY HAVE --
           WHETHER THEY SELL A LOT OF CIGARETTES OR NOT, THEY ARE GOING TO
           HAVE TO MAKE THOSE PAYMENTS; ISN'T THAT CORRECT?
           
           

           MRS. FEINSTEIN: THAT IS CORRECT. BUT, YOU SEE, THE THING THAT
           BOTHERS ME IS THAT IN THIS RUSH TO JUDGMENT, EVERYTHING IS
           EVALUATED BASED ON THE PER-PACK NUMBERS THAT ARE THROWN AROUND,
           BASED ON WHAT IS A NET ADDITION THAT WILL NOT BE THE REAL
           STREET ADDITION. SO THERE'S NO WAY WITH THE SPEED THIS BILL IS
           MOVING TO KNOW EXACTLY WHAT WE'RE GOING
{END: 1998/05/20 TIME: 19-00 , Wed.  105TH SENATE, SECOND SESSION}