Cigarette taxes and smuggling rise in New York

On March 1, New York State raised its cigarette tax by 55 cents, bringing it to $1.11, the highest in the nation. In New York City, the tax is even higher at $1.19 per pack. Predictably, this tax increase led to a massive increase in cigarette smuggling, which is putting many legitimate cigarette sellers out of business and undermining efforts to reduce teen smoking.

Despite ample evidence that heavy taxes actually reduced cigarette tax revenue, New York officials have consistently responded by raising taxes still higher. This only led to more smuggling and attendant violence, including the hijacking of cigarette trucks, which is said to be even more profitable than robbing an armoured truck.

There has been a sharp drop-off in cigarette sales at convenience stores throughout New York. Many smokers are apparently buying cigarettes from Indian reservations, which sell cigarettes tax-free over the Internet.

Interstate smuggling of cigarettes is a federal crime. However, since passage of the Contraband Cigarette Act in 1978, enforcement has actually fallen. A new study by economists Jerry and Marie Thursby of Purdue University says states reduced their enforcement once the federal government took over responsibility. But since the Treasury's Bureau of Alcohol, Tobacco and Firearms has never devoted significant resources to cigarette smuggling, there has been a net reduction in enforcement efforts.

Cigarette smuggling is a worldwide epidemic. In Britain, smokers take advantage of the significantly lower tobacco taxes in France. Officials estimate that 80 percent of loose tobacco is smuggled and that half of all cigarette sales are contraband in the north of England. As a result, cigarette tax revenues are collapsing and expected to be down by one-third this year over 1999.

Thus British government's "smuggling czar," Martin Taylor, has suggested lowering the cigarette tax, an action taken by Canada, Sweden, Denmark and Switzerland in recent years.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 3, 2000.

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