Ken Berwitz

Did you know that New York State has a regressive tax on cigarettes?  Maybe you didn't, because - if they are as obtuse as they seem - the geniuses responsible for New York's cigarette taxes certainly didn't.

Conventionally, the term "regressive tax" refers to a tax which lessens in percent as you earn more.  Social Security is a perfect example -- currently, workers pay 4.2% on the first $110,000 they earn, and nothing thereafter.  So if someone earns $220,000, he/she pays a 2.1% rate:  i.e. 4.2% of the first $110,000 and nothing for the second $110,000.

But New York State has a different kind of regressive tax on cigarettes; one which doesn't show up in any government-issued table.  New York loses a ton of cigarette tax money because, according to a study by The Tax Foundation, over 60% of the cigarettes purchased there are now smuggled in from somewhere else.

How high is the cigarette tax in New York State?  Just the highest in the nation, at a whopping $4.35 a pack (by comparison, it is 17 cents in Missouri and 30 cents in Virginia).  Plus, New York City adds on another $1.50. 

Then you add in the federal taxes, the cost of the cigarettes themselves (far less than the taxes) and a profit for the seller.

According to the article referenced above, it is not uncommon for someone in New York City to pay $12.00 per pack.  But, being in Manhattan all the time and checking prices as I do, I know they are understating.  It is not uncommon to pay $14.00 or even $15.00 a pack.  That is not a sarcasm or a joke either, it is the God's honest truth.

And as the article states - which I'm sure you've already figured out - "...tobacco smuggling and the tax rate have risen practically in tandem since 2006. The New York State tax on cigarettes has risen 190% since that time, as the rate of smuggling increased 170%."

In other words, more New York taxes cigarettes, the less tax revenue they get, because more and more people buy smuggled cigarettes, which provide New York with a grand total of no taxes at all.

What a great idea this was!!!!

So how did things come to such an idiotic pass?  I have a vision:  I see the New York political "brain trust" hunkered down in a conference room, figuring out that ..."If we raise taxes through the roof.  We'll stop lots of people from smoking because they can't afford it, and the ones who do will give us a huge amount of tax money".

Maybe that "let's raise the taxes" meeting took place and maybe it did not.  But regardless of how it happened, it did happen. 

So how is it working out?  Well, let's see:

-The astronomical taxes created a huge window of opportunity for smugglers to bring in cigarettes from states with far lower taxes (which is to say all the rest of them):  to sell them for much less than legal cigarettes cost and still make a booming profit.  Obviously, this has not been lost on the smuggling set;

-For users, the dramatically lower cost undoubtedly has moved a great many people who otherwise would never break the law to buy cigarettes on the black market;

-Since instead of paying a lower tax rate that might have been acceptable to them they are now paying no taxes at all, the cost of cigarettes may be so low that there is no incentive to stop smoking  at all; 

-New York - State and City - are generating less in taxes than they were when the cigarette tax was lower :  The Tax Foundation estimates a yearly loss of about $1.7 BILLION dollars;

-And organized crime, which it is safe to assume does most of the smuggling, is raking in a huge fortune.

Wouldn't it be nice if New York learned something from this?  If the federal government did?

What do you think the odds are?  I suggest you figure them out with a calculator that has lots and lots of decimal places.