Why New York’s high tobacco taxes cost the state billions

John Aidan Byrne
January 29, 2017
New York Post
Cigarette sales in New York have become a burning issue on many fronts recently, with anti-smoking tax policies costing the state and city billions in lost tax revenue.
A recent study found that more than 50 percent of the cigarettes consumed in New York are smuggled in — the nation’s highest rate.
For 2015, the most recent reporting year, the state lost $1.63 billion because of untaxed sales, according to new figures released by analysts for the Tax Foundation and the Mackinac Center for Public Policy.
The $13-a-pack Marlboros you buy in Manhattan — with the correct tax stamps — comes with $4.35 state tax levy and an additional $1.50 in city tax — the result of a decade-long quadrupling in local tobacco taxes.
These astronomical costs have driven the black market in smokes where the city in 2015 lost an estimated $740 million and the state, about $895 million on top of that, the Tax Foundation analysts calculated for The Post.
“Given the relationship between higher cigarette tax rates and higher smuggling, policymakers should consider these issues when determining whether a cigarette tax increase is appropriate,” said Scott Drenkard, director of state projects for the Tax Foundation.
The Washington-based tax policy nonprofit said the campaign by many states to generate more revenue — and at the same time deter smoking — has backfired into a morass of smuggling and black market activity.
New York’s toxic cigarette tax policies may be evolving into an Al Capone-style, Prohibition-era economic disaster.
A study by the Mackinac Center says that besides the tax losses, the smuggling activity has uncovered evidence of violence against residents and police officers; financing of a terrorist organization; cigarette truck hijackings and counterfeiting of tax stamps; property damage; and the counterfeiting of name-brand cigarettes that are replaced with inferior products, including smokes from China.
New York’s toxic cigarette tax policies may be evolving into an Al Capone-style, Prohibition-era economic disaster
The legal packs have tax stamps from both the city and state.
As more New York residents pick up the cheaper smuggled smokes, which account for 55.4 percent of statewide cigarette sales, consumers in some of the city’s poorer neighborhoods are being bombarded by tobacco advertising in order to try to re-enforce brand loyalty against knock-off cigarettes.
That’s because cigarette companies are targeting more heavily smoking low-income and marginalized communities with some of the nation’s most intense and insidious marketing campaigns, according to anti-smoking advocates.
And they’re moving in truckloads of the legal smokes to stores and outlets in these targeted communities across the city.
“You are more likely to see a lot more cigarette advertising and promotions in these poorer neighborhoods compared with other neighborhoods,” said Robin Koval, CEO of the youth anti-smoking lobby Truth Initiative. Koval did not offer a statistic for New York, but noted that in Washington, DC, cigarette companies placed 10 times more tobacco advertisements in African-American neighborhoods than in other neighborhoods.
The comptrollers’ offices in New York City and Albany, had no comment on the cigarette tax fiscal shortfall.