Cigarette Taxes Up, Bodegas Down

As the NY Sun is reporting this morning, the proposed cigarette tax hike by NY State will be another bonanza for the black market: "The proposed tax hike on cigarettes in the state budget would create a "black market gold mine" for smugglers and force New York smokers to pay the highest taxes in the nation, experts warn."

When the city raised this tax in 2002-by a whopping 1800%-the cigarette revenues in local bodegas and newsstands dropped by about 60%; with most of the lost sales going to street vendors and the internet. The biggest loophole in the law, as the Sun points out, is the sale of smokes from Indian reservations: "A 2007 report by the Independent Budget Office, a nonpartisan city agency that analyzes the city's finances, found that 27% of city smokers and 34% of upstate smokers sometimes bought "under-taxed" cigarettes in 2006. These smokers avoided the tax by buying cigarettes from other states, ordering cigarettes over the Internet, and purchasing cigarettes at Indian reservations."

If you remember, then Governor Spitzer had promised to close this loophole once elected, but almost immediately reneged on the promise-guess he was too busy elsewhere to concentrate on living up to his election obligations. Absent some real enforcement here, the tax hike will really put the nail in the coffin for upstate C-stores, especially those in close proximity to the reservations-the differentials are simply too great for the legitimate retailer to compete with the tax dodgers.

Which doesn't worry the smoke0free crowd: "Despite any smuggling or tax evasion going on, the state or local governments still make a big chunk of money from increasing their tax rates on cigarettes," the director for policy research at Campaign for Tobacco-Free Kids, Eric Lindblom, said. "That's not to say there isn't any smuggling or tax evasion. There is." And of course the black market on the street corners of NYC has no age restrictions to prevent children from easily getting their hands on the product.

Lindblom recognizes the Indian issue and says; "Sales at Indian reservations pose a greater problem in New York State, Mr. Lindblom added, but can be addressed by better legislation and enforcement." But why put the tax cart before the enforcement horse. Sales of tobacco have already plummeted. What about the health of NY business Mr. Lindblom?