Smoking Dope

We have been really busy on a number of fronts so we haven’t had the time to speak our piece about the governor’s disgraceful performance on cigarettes and other tobacco products-raising the price by $16 a carton and stiffing the retailers and wholesalers out of a much needed raise. For the past decade and a half these two tiers of distribution have taken it on the chin from buttleggers out of the criminal enterprises run by Indians. Instead of recognizing the hardships that the state’s failure to enforce the law have created, the governor added insult to injury by rejecting the effort to raise the price allowance for the beleaguered two tiers.

But what’s even worse, is what we have described as the summer of love-a two month grace period where the tax will be implemented but there will be no enforcement action; effectively handing the Indians a bonus for their illegal activities that have victimized the legitimate NY businesses. Here’s NYACS’ Jim Calvin’s take on this shafting from Paterson. He titles the communication, “Screwed Again.”

“Despite our best efforts, the Legislature on Monday narrowly approved the huge increases in tobacco taxes that will be devastating to our industry. By a vote of 77-64 in the Assembly and 32-30 in the Senate, they approved Governor David Paterson's proposal to:

- Increase the state excise tax on cigarettes from $2.75 a pack to $4.35, effective July 1st.

- Increase the state excise tax on cigars and other tobacco products from 46% of wholesale value to 76%.

- Increase the state excise tax on snuff from 96 cents per ounce to $2.00 per ounce.

- Reclassify "little cigars" as cigarettes for tax purposes, making them taxable at $4.35 a pack.

The move will push pack prices well over $8 across New York State. In New York City, which has its own additional tax of $1.50, packs will cost as much as $11 or $12.

Right now, half the cigarettes consumed in New York are purchased without collection of any New York State tax, and these increases will likely push that to two-thirds as even more smokers flee tax-inflated prices at our stores and shift their purchases to Indian reservations, border states, the Internet, or the black market.”

But what really burns us is the argument that the governor’s people used to reject giving the bodegas a raise. Get this. They claimed that it would hurt the state’s revenue collection because the extra cost of cigarettes would impel people to buy their smokes elsewhere-totally ignoring the $16 a carton levy that the state is imposing. What chutzpah! We have the spectacle of an accidental chief executive, who has been promoted without merit to every job he has ever held, shafting the taxpaying small businesses of New York.

But it gets even better. It appears that the enforcement provision that is part of the “global settlement,” may be a mirage. As Calvin tells us: “The bill that passed Monday does outline a plan to start collecting taxes on Indian sales of cigarettes to non-Indians starting September 1, 2010, but implementation dates have come and gone before without any action whatsoever by the Tax Department, and there's no reason to expect this one will be any different. In New York, there's always a fixed date for a cigarette tax increase to take effect, but a "someday" timetable for enforcing tax collection equally.”

This charade hasn’t escaped the attention of the editorialists at the NY Post, who observed: “Gov. Paterson says that the $1.60-a-pack cigarette-tax hike he muscled through the Legislature yesterday will come with a crackdown on Indian-reservation tobacco smuggling, and the result will be an extra $440 million for Albany. Nonsense. Reservation retailers have been thumbing their noses at governors from Mario Cuomo to Paterson, building a multi-billion-dollar business in the process.”

And the paper goes on to point out: “Paterson couldn't well budget an extra $1.60-per-pack tax without at least promising to crack down on the trade. But nothing in the governor's history, or the new law, indicates that he's serious. From the start of his incumbency, Paterson has had the power to collect the tax, yet has instead pursued sham "negotiations" with the tribes -- which in the past have responded with violence to efforts to enforce the law.”

What the agreement that passed the other day says, is that the governor has unilateral authority to negotiate with the tribes, and could possibly totally alter any enforcement mechanism that isn’t to his liking-which leads the Post to its Bonnie and Clyde analogy: “Unsurprisingly, yesterday's language, passed as part of an emergency budget extender, authorizes Paterson to continue talks with the tribes -- and even to abrogate the tax unilaterally if a deal comes as part of a federal court settlement. Bonnie and Clyde should have been so lucky.”

So, unless we can depend on David Paterson to not behave fecklessly, we are looking at the potential for total anarchy-with projected revenues literally going up in smoke blown right out of an Indian peace pipe. We’ll give the Post the last word: “It's also unclear whether taxes as high as New York's are now -- $5.85 per pack, city and state -- even can be enforced. Not that Gov. Paterson or the cowards in the Legislature care about any of that. They get to budget $440 million in phantom revenue into their long-overdue budget, bringing it that much closer to "balance" without actually cutting spending -- the plan being to deal with the consequences after Election Day, probably with real tax hikes.”