By John Hendren
AP Business Writer
Thursday, April 2, 1998; 4:43 p.m. EST

NEW YORK (AP) -- The future of the tobacco industry rests as much on Colleen Harris as on Washington lawmakers.

The 38-year-old smoker doesn't expect to quit if Congress passes a $506 billion plan that would drive up the cost of a pack of cigarettes by more than $1.10. But she's already considering lighting up 15 smokes a day instead of her current 20.

How much smokers cut back will determine how well Big Tobacco would weather price hikes and penalties under the leading Tobacco bill in Congress. Estimates of the drop in smoking range as high as 43 percent.

While the cost to tobacco companies is still in debate, the deal would definitely leave smokers with lighter pockets.

``I would be upset by it, but I would still pay the price,'' said Ms. Harris, a 17-year smoker who took a smoking break at a Burbank, Calif., bar Thursday. ``It's completely obnoxious. People are going to smoke, no matter what.''

Tobacco companies doubt that, and they warn that the current proposal could bankrupt them. Wall Street isn't convinced. Stock prices for RJR Nabisco and Philip Morris have dropped more than 6 percent since the bill was unveiled Monday, but they remain nearly unchanged from their level a year ago.

``I don't think they'll go bankrupt, said Jack Maxwell, a tobacco analyst with Davenport & Co. in Richmond, Va.

But a disproportionate amount of smokers are blue-collar workers who earn no more than $30,000 to $35,000 a year, and many are spending more than $1,000 a year on cigarettes now, he said.

``I doubt they're going to be spending 10 percent of their income on cigarettes.

Price increases could double the price of a pack within five years.

The $1.10 fee called for under the bill by Sen. John McCain, R-Ariz., would be added to the price of a pack. Wholesalers, retailers, state tax agencies would likely add proportional increases on top of that.

``The $1.10 in McCain's bill would lead to price increases of double that,'' tobacco industry spokesman Steve Duchesne said.

Goldman Sachs analyst Marc Cohen estimates the McCain bill puts the price of a pack at a little over $3 next year and $4.40 in 2003, including inflation.

If that happens, Ulrich Rupp says he'll probably quit.

``I only smoke at work, to get out of the office,'' said Rupp, 30, a Baltimore computer consultant who smokes about half a pack a day.

Many tobacco analysts assume each 10 percent increase in price cuts consumption by 4 percent. Among teen-agers -- those Congress hopes to price out of smoking -- the each 10 percent increase in price cuts smoking by about 7 percent, according to a University of Illinois researcher.

Morgan Stanley Dean Witter analyst David Adelman estimates 43 percent fewer cigarettes would be sold by 2003, under the McCain bill.

``I think consumption's going to fall precipitously,'' Cohen said. ``The economics that are incorporated into this proposal are more significant than many investors and analysts expected.''

Jack Taveres, who took up smoking again five months ago after quitting for 15 years, isn't so sure higher prices will matter.

``That wouldn't be a reason for me to quit smoking,'' said Tavares, owner of Crazy Jack's Country Bar and Grill in suburban Los Angeles. ``I don't think people are really worried about the price of cigarettes that much.''

An agreement big tobacco companies signed last year to settle lawsuits with state attorneys general aimed at raising prices by $1.50 at the retail level over 10 years. Cigarette makers say that now-unlikely deal would have cut sales by 40 percent.

Cigarette makers could raise the prices beyond what Congress orders to boost profit margins, but there's a limit to how far they can go, analysts say.

``I guess if they raise the price enough they may even make more money right now, but that may be killing the goose that lays the golden egg,'' Merrill Lynch tobacco analyst Allan Kaplan said.

That's fine with Laurie Jones, a smoker who sees the tax as an incentive for her 17-year-old son to quit smoking.

``It's a terrible, terrible habit,'' said Ms. Jones, 42, of Eldersburg, Md. ``It would stop young people from smoking 'cause they just don't have the money.''