The best way to stop America’s smoking problem is to tax it into oblivion, right? That’s what many of our politicians have claimed in an underhanded effort to boost tax revenue. But now new reports are revealing that increased taxes might not be the answer after all.
New York’s scheme to increase tax revenue by passing an increased smoking tax backfired, costing the state millions. New Yorkers now pay a whopping $10.60/pack on legal cigarettes in the state, due to the astonishingly high tax rates imposed in the years since 2006.
For the smoking New Yorkers, the final straw came in 2010 when New York increased the state smoking yet taxes yet again, this time almost doubling the state’s tax on the luxury item. New York’s tax skyrocketed from approximately $2.75 sales tax per pack in 2009 to an outrageous $4.35 per pack in 2010.
Sales of cigarettes immediately plunged in New York. However, instead of raising the millions the state intended when it increased the cigarette taxes 190% in the last decade, New York has lost an estimated $400 million dollars in tax revenue.
The loss of revenue is not because the good citizens of New York have kicked the habit, they have just given up purchasing their cigarettes legally. The New York Post reported that the state lost out on an approximate $1.3 Billion dollars in uncollected sales taxes as a result of smokers switching product lines for cheaper alternatives.
The Bureau of Alcohol, Tobacco, Firearms, and Explosives are taking a hit resulting from this tax scheme as well. It is estimated that the ATF loses roughly $5.5 million dollars annually to New York cigarette smugglers.
New Yorkers have established a veritable black market of cigarette sales. Residents are heading out of state to purchase cigarettes with reduced tax, In fact, The Tax Foundation estimates that roughly 58 percent of the cigarettes smoked in the state of New York originate across state lines and the packs of properly taxed product has dropped by nearly 62 percent.
The steep rise in cigarette smuggling rings in New York has also spurred a statewide increase in the presence and influence of organized crime in New York as smugglers rush to meet the increased demand of illegally acquired smokes.
Additionally, many critics maintain that the cigarette tax does more than just increase crime. They claim that the exorbitant tax causes a disproportionate strain on lower income residents who now spend an estimated 23.6 percent of their annual income on cigarette smoking. It is likely that this further depletes the state of funding by draining resources that are redistributed to meet the needs of the poor.
The New York cigarette tax scheme has been a complete failure. Not only has it failed to raise revenue for the state, it has actually plummeted the taxes they already were collecting. The tax has not decreased the number of smokers in New York either or reduced the cost to public health; it has simply exported what revenue it could have gained to other states.
Rather than taxing cigarettes at such astronomical rates, wouldn’t it be smarter for states to offer smokers a reasonable tobacco-free alternative? Electronic cigarettes would be an easily available option that could legitimately help smokers kick the habit. Of course, legislators aren’t really all that interested in public health. Instead, they are looking at the bottom line. So in the big scheme of things, it looks like high cigarette prices are here to stay. Now the only question is how high the tax on ecigs will go in the future.