Tuesday, November 17, 2009

Adding Cant to Can't

It is simply amazing to us how conventional wisdom, devoid of any data that would suggest its veracity, begins to permeate in certain quarters. So it is with the issue of Indian cigarette retail tax avoidance. When we last left the discussion, Senator Carl Kruger was presenting a demand note to the governor to begin enforcing the law forthwith. In making his demand he posited the figure of $135 million per month as a receivable that the state could begin to collect immediately.

Soon after Kruger had made the demand, the conventional wisdom hyenas-in the media as well as in government-let loose on the Brooklyn lawmaker, accusing him of vastly inflating these uncollected funds. As the NY Times reports this morning: "Not to be outdone in the effort to sway public opinion on the matter, the governor’s primary antagonist throughout the budget process, Senator Carl Kruger of Brooklyn, held a news conference demanding that Mr. Paterson order the state treasury to begin collecting taxes on cigarettes sold on Indian reservations. “We have to ask everybody to share both the benefits and the burdens of being a New Yorker,” Mr. Kruger said. “Part of being a New Yorker is paying the taxes that are assessed upon you. Today is the day that we draw a line in the sand. And I say we should collect before we cut.”

And the response: “The idea that New York State could reap anywhere close to $135 million in tax revenue within the next several weeks is preposterous,” the governor’s spokesman, Peter Kauffmann, said. “You can’t balance the state’s budget with gimmicks and imaginary revenue.”

No, what is preposterous is the fact that this governor simply refuses to enforce the current law-and consistently underestimates the tobacco revenue precisely because it would add to the embarrassment of having a chief executive who is simply afraid to hold the Indians to the same law abiding standards as everyone else must be held to. But what is even more embarrassing is a slothful press corps that seems to accept a government pronouncement without a smidgen of skepticism.

Some of this can be gleaned in this Observer story on the, "obstacle," Kruger: "Mr. Kruger had just delivered a letter to David Paterson demanding that the governor start collecting taxes on cigarettes sold on tribal reservations. It's one of those perennial proposals that politicians dust off when they need an alternative to something governmentally responsible but politically unpalatable. Mr. Kruger's projection of how much revenue it would yield is all but universally dismissed as absurd; its size unprecedented."

"Universally dismissed?" Is there a scorecard we can refer to on this? In fact, if the press would go about doing its own research it would find that the Kruger numbers parallel those that have been proffered by state tax department officials. In 2005, Deputy Commissioner William Comiskey of the State Department of Taxation and Finance, testified that the Indian retail outlets bought 47 million cartons of untaxed cigarettes in that year alone.

If you do the simple math here, and multiply the number of untaxed Indian retail cigarette cartons by the state excise tax ($27.50) and the average sales tax ($4.75)-for a total of $32.50-you reach the numbers that the senator has laid out in his letter. But that doesn't stop the real obstructionists from substituting derision and opprobrium for clearheaded analysis: "Carl Kruger's a liar, his letter is a lie, he owes the governor an apology and this is not helping the process of getting a deficit reduction package," Larry Schwartz, Mr. Paterson's top aide, told the Daily News. "I'd rather hear what Freddy Krueger thinks to be honest with you," Mr. Paterson told the Associated Press. "For them to even say it is irresponsible bordering on malevolence."

And-to fight fire with fire, perhaps-there may be many New Yorkers who would rather be governed by Freddy Kruger than the current occupant of the executive mansion. But all of this, smoke and mirrors really, is an effort to avoid the simple task of providing the senate, the media and the public with the accurate accounting that only the state tax officials can provide.

And the press should be demanding this as well-piercing the veil of fear that has apparently gotten in the way of the ability to do simple math and give an honest accounting. The Times Union is closer to the truth on all of this: "Citing earlier disruptions, Paterson fears a tax effort could spark violence, especially in the Seneca Nation of western New York where many of the disputed cigarettes are sold. "A police problem could quickly elevate to a military one," said Peter Kiernan, the governor's counsel, of the idea at a hearing last month. In 1997, the last time the government tried to collect such taxes, American Indian protesters shut down the Thruway and clashed with State Police."

And the TU credits Kruger for courage in the face of a pusillanimous governor: "But Kruger compared backing down on tax collections to saying the government wouldn't enforce property tax collections for fear angry homeowners might blockade the Long Island Expressway." Might not the cat calling from the Second Floor be a diversion from this unpalatable public timidity?

But instead we get the following from the NY Daily News' Bill Hammond: "Ditto for Sen. Carl Kruger of Brooklyn, who made a big show yesterday of demanding that Paterson immediately start enforcing cigarette tax laws on Indian reservations. It's true that Albany has tolerated rampant tax evasion that hurts law-abiding merchants and costs state and local government big bucks. But for Kruger to claim that enforcement could reap $1.6 billion a year is reckless. "If people smoked that much there would be a big black cloud over the state blocking out the sun," one budget official quipped. Throwing around numbers like that suggests that Kruger is exploiting the issue as an excuse not to grapple with the politically dicey work of finding cuts."

We have a suggestion for Hammond-follow I. F. Stone's dictum and do some reporting-don't accept any official statistics without some verification. And for that matter, why don't you query the Bloomberg administration that puts the uncollected funds at around $1 billion. It is easy to dismiss inconvenient truths, especially when they get in the way of a good narrative.

Here's the bottom line: around fifty percent of all cigarettes consumed in NY State are untaxed. So, unless our state's consumption has drastically veered from those of all of the other 49 states, New Yorkers will smoke 90-96 million cartons and will collect the tax on only around 46 million.
The numbers are staggering, but the cloud that some nonfeasant state official claims surrounds Senator Kruger's figures, really applies to the exhaust fumes emitted from a mendacious state government that lacks the fortitude to apply the law equally to all of the residents of New York State.