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April 21st, 2010

Who really benefits from cigarette tax?

By Walter Smith

Governor David Paterson has proposed an additional $1.00 per pack tax on cigarettes. Supposedly, the tax will raise much-needed revenue to help balance the budget and fund vital tobacco prevention and cessation programs.

Cigarette taxes are a hot topic. Supposedly, cigarette taxes are a way governments can achieve two social objectives. The first objective is to reduce the number of citizens who smoke. The government issuing the cigarette tax hopes that the rise in the cost of a package of cigarettes will induce people to quit smoking. The second objective is to raise government revenue. The question is how does the State accurately measure the results of the tax increase other than counting the increase in gross revenue.

According to a New York State Department of Health report, the state loses between $436 million and $576 million in taxes to the sale of illicit cigarettes. Nevertheless, New York State ignores this, the report charges, "despite the fact that these illicit profits are leaving the state and being sent overseas to Jordan and Lebanon, among other countries."

In taking the lead in fighting tobacco use, New York has funded tobacco prevention and cessation programs, enacted a strong smoke-free workplace law and a cigarette tax of $2.75 per pack. As a result, it is reported that New York has reduced its adult smoking rate to 16.8 percent and its high school smoking rate to 13.8 percent, both well below the national rates of 20.6 percent for adults and 20 percent for high schoolers. Did New York State actually reduce the percentage of adult and high school smokers or did they simply lose them as smokers of taxable cigarettes?

At $2.75 per pack, New York has one of the highest cigarette tax rates in the country. New York City imposes an additional tax of $1.50, for a total tax of $4.25 per pack. At the other end of the spectrum, South Carolina’s tax is just .07 cents per pack, Missouri’s is .17 cents and Virginia’s is .30 cents.

Because New York has the highest cigarette tax in the country, it has become a haven for cigarette bootleggers and coveted territory for ruthless criminals. In March of 2010, a Virginia man pleaded guilty to hiring a hit man to murder a couple he suspected of stealing his bootleg cigarettes. His gang was planning to sell 388,000 cartons in New York for a profit of more than $1 million. "This investigation highlights the illicit profits and potential violence associated with those who illegally traffic in contraband cigarettes," said Bureau of Alcohol, Tobacco and Firearms Agent Willie Brownlee.

New York has a long, bloody history of cigarette tax evasion. The Legislature’s plan to add yet another dollar to the tax will further attract this lawless group thereby creating further danger to the public.

The cost of a taxable carton of cigarettes in New York City is approximately $95. This is the perfect inducement to a smuggler to buy a truckload of cigarettes in South Carolina and sell them in New York City for a profit of $30 - $45 per carton. Studies indicate states are losing about $5 billion annually in tax revenue because of illegal tobacco sales.

A quick check of cigarette smokers along Myrtle Avenue in Brooklyn New York revealed the following facts. Eight out of 10 smokers interviewed were familiar with discount (illegal) cigarettes. When asked what they though of the additional cigarette tax proposed by Governor Paterson, most said the extra tax imposed an extra burden on their limited income. One elderly gentleman said, "when I visit my family down south, I stock up on a few cartons."

Cigarette smuggling is a big problem for law enforcement. Most cigarette smugglers are people with a high disregard for the law. The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has found that Russian, Armenian, Ukrainian, Chinese, Taiwanese, and Middle Eastern (mainly Pakistani, Lebanese, and Syrian) organized crime groups are highly involved in the trafficking of contraband and counterfeit cigarettes.

Rep. Peter King (R-N.Y.), ranking minority member of the House Committee on Homeland Security, said that bootleggers who have immigrated from the Middle East are buying tax-free cigarettes at Indian reservations in upstate New York and reselling them in New York City. Some of the profits are then funneled to terrorist groups, the report contends.

The connection to terrorism is no exaggeration. When New York police cracked a smuggling ring in 2005, they uncovered a multimillion dollar flow of funds from New York City to unknown individuals in the Middle East. Police Commissioner Raymond Kelly gave voice to the obvious conclusion: Terrorists probably got the money. Just a few weeks before that 2005 bust, Buffalo-area businessman Aref Ahmed had been sentenced to three years and a month for cigarette smuggling. The feds said he’d used the racket to fund "scholarships" at terrorist training camps in Afghanistan during the spring of 2001. Going back to 1993, counterfeit cigarette stamps were found in the apartment of the first World Trade Center bombers.

Let’s simply count up the cost of the additional tax. Taking under consideration, the increased cost of law enforcement, cost of incarcerating convicted smugglers, cost to world governments resulting from terrorists activities, cost of decreased tax revenue to the State and the excess financial burdens imposed on the poor.

New York City smokers currently pay an average of $9 per pack. Add an additional dollar in State Tax and the cost of one pack of cigarettes skyrockets to $10.00.

When we count up the cost, who really benefits?

4.5 / 5 (9 Votes)

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Reader Response
  • jean jenkins
  • July 20th, 2013 As stated beore this is insane. If we all stoped smoking and using liqour then where will they get thier money? Do we start on chewing gum? Do I see another Prohabition around the corner? I hope not. And do not forget the American Cancer Society has thier fingers in it also to stop people from smoking. People have smoked for thousands of years and it is not going to stop now. As American citizens we do have the right to protest from excessive taxation, as our rights are being taken away and challenge them all the way to the White House.

    Reader Response
  • Mike88
  • August 15th, 2010 Colonist your response is all so true, legislatures don't look at the relationship between increased taxation of any product or service ands the consequences of their actions.

    Reader Response
  • Tom
  • May 31st, 2010 Insanity is described as doing the same thing the same way over and over again and expecting a different result. New York State is broke. Having chased the tax paying legal resident out of the state in search of a place where they get to actually keep some of their income. Since tax revenue is down because of this exodus, their answer is to RAISE TAXES. Each time taxes are increased on ANY PRODUCT, that product's sales decrease. The electronic industry is about to experience a dramatic decrease in their sales with the imposition of that new tax. Many will just order their new phone, computer, TV, etc., via the internet rather than over pay for an item due to hidden taxes. This state is doomed. Either we kick all these insane morons out of office and start over, or just send your whole pay check to Albany every week. Our dollar is already worth less than any other state in the Union based on confiscatory taxes. If you are awake and alert to the problems we face, wake a neighbor, a friend, a family member. If we don't take action soon, not certain of the future.

    Reader Response
  • Anonymous
  • May 25th, 2010 What a non-surprise. In Chicago, we have a city and county tax that add up to nearly $3/pack on top of the $1/pack Illinois tax. Because you only need escape Cook County, you save $30/carton and all the smuggling is by do-it-yourselfers instead of organized crime. It's guestimated that 3 out of 4 cigarettes smoked in Chicago are from outside the county! And our governor, trying to plug a gusher of red ink, wants to jack up the state tax. Hoosier Specials, anyone? Smoke if you got 'em!

    Reader Response
  • Audrey Silk
  • May 23rd, 2010 Article author Walter Smith provides a great service with this article. A copy should be sent to each and every NY state legislator.

    However, I'd like to add that the Convenience Store interests are no better than Gov. Paterson or lawmakers who support an increased tax. While they might not support cig tax hikes in general, once one's been implemented they start shouting about their lost business to the Indian reservations. But do they demand a decrease in the tax? No. They (with support from editorials in major NY newspapers!) demand that the state go after them for the tax in order to level the playing field for relief from losing business to these others. In my opinion that makes them just as culpable in the advancement of this displaced sales and cost-incurring lunacy.

    Founder, NYC Citizens Lobbying Against Smoker Harassment (C.L.A.S.H.)

    Reader Response
  • Colonist
  • April 23rd, 2010 Bootleggers, black marketeers, creative entrepreneurs and travelers benefit from draconian cigarette tax. The government has put in place a system of taxation that can be circumvented very easily and technically legally, in an open market system that we have in the states.
    People who smoke like to spend less to smoke, they would like to spend the savings on other products. Many people who consume anything like to spend less for products, that's why there are coupons, dollar stores and stores in the marketplace that cater to those who like to save. Cigarettes are cheaper in other parts of the from there - save money. Most people are inconvenienced to travel to buy the product on sale and would welcome someone who can do that for them, provide the product at great savings(with a smaller margin for the seller to cover costs and profit).
    To place the blame on the consumer for buying a product that may funnel terrorism is misplaced. If the state government applied a normal tax burden on tobacco as to other products, this system of profit would not exist.
    The government, however, has created Jobs in the black market sale of cigarettes, unfortunately these positions do not pay state and federal payroll tax.
    Government needs to look in a mirror - stat.

    Reader Response
  • InvestigateNonProfits
  • April 23rd, 2010 This is so funny that it's insane. Lost revenue to illegal cigarettes BECAUSE THE TAXES ARE TOO HIGH TO BUY THEM LEGALLY so UP the taxes some more? Is Patterson an idiot or is he just in the pockets of big pHARMa?

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