Opinion Editorial | |
| Wednesday, December 15, 1999 | |
Hazards of Increasing Cigarette Taxes |
The New York State Legislature, with Gov. Pataki's blessing, is reportedly planning a 25 cent rise in the state's current 56 cents per-pack cigarette tax, giving New York the fourth-highest cigarette tax rate in the U.S. If experience is any guide, it will lead to a sharp rise in smuggling that will burden legitimate cigarette dealers and, ironically, make cigarettes more easily available for youngsters.
In 1997,then-state Attorney General Dennis Vacco estimated that the state was losing $300 million per year in revenue from cigarette bootlegging in 1997. The figure has undoubtedly risen since, due to growth of the Internet and the easy access any smoker with a computer now has to tax-free cigarettes, often sold legally from Indian reservations. One web site, www.discount-cigarettes.org, lists more than 50 sources for such cigarettes.
Criminals have long found the corridor between North Carolina and Massachusetts to be among the most lucrative for cigarette smuggling. North Carolina and Virginia tax cigarettes at just 5 cents and 2.5 cents a pack, respectively; it is easy for smugglers to buy truckloads of cigarettes in those states and distribute them at great profit in Maryland (66 cents per pack), New Jersey (80 cents), Massachusetts (76 cents) and, of course, New York.
Each of these states has seen a significant rise in smuggling after raising their cigarette taxes. For example, when New Jersey doubled its tax on Jan. 1, 1998, state officials detected an immediate rise in smuggling activity, according to the Newark Star-Ledger. After Maryland hiked its rate by 30 cents earlier this year, the Baltimore Sun reported that state officials were so overwhelmed with smuggling cases that they had to lease new storage space to hold all of the seized smokes.
The growth of such a profitable corridor for sales of smuggled cigarettes has many effects. Officials report that the smuggling business, once dominated by small-time hustlers, is now being taken over by organized groups that can ship higher volumes of cigarettes at lower cost.
The rise of smuggling also means the loss of an important element of control: established retailers that are easier to police for illegal sales to minors are being replaced by informal sales networks selling cigarettes to those of any age with cash.
In Europe, the smuggling problem has led some countries, like Sweden, to actually cut their tax rates, reducing smugglers' profits and helping keep cigarette distribution within established channels. Indeed, lower tax rates can even raise government revenue.
Any further rise in New York's cigarette tax will only exacerbate an already serious problem. Tom Stanton, director of the city Department of Finance, says smuggling is at "tidal wave" levels now. At some point, politicians simply have to accept that there is a practical limit to cigarette taxation.
Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), "Taxing Cigarettes May Be Hazardous," New York Post, December 15, 1999.
The National Center for Policy Analysis is a public policy research
institute founded in 1983 and internationally known for its studies on public policy issues.
The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.
Julie Hillrichs, Dallas, TX 972-386-6272 Sean Tuffnell, Dallas, TX 972-386-6272 Joan Kirby, Washington, DC 202-220-3082 Internet: http://www.ncpa.org Home | Support Us | All Issues | Social Security Debate Central | Contact Us |