It’s good Gov. Cuomo understands New York has a problem with cigarette smuggling. Too bad he has yet to figure out what’s really driving the problem of illegal smokes: our high tobacco taxes.
Just days after a key report found New York has the highest percentage of illegal cigarettes of any state, the governor announced the creation of a new “strike force” meant to crack down.
Teams from 13 state, local and federal agencies, he said, are joining to stop “the influx of counterfeit and untaxed tobacco products into New York” and nab smugglers who “evade the law and rob the state of the revenue.”
But the actual report — which was done by the Tax Foundation and based on an analysis by the Mackinac Center for Public Policy — cited a factor Cuomo seems to have missed: Along with the most smuggling, New York also has the nation’s highest cigarette taxes at $4.35 a pack. In the city, smokers pay an additional $1.50 a pack. Compare that to, say, Missouri, where the tax is just 17 cents a pack.
Smugglers are attracted by the hefty profits they can make by buying smokes in places where the taxes are low and reselling them illegally in places such as New York, where prices for legal smokes are driven up by the high tobacco tax. One study estimates that a smuggler could pocket as much as $4 million simply by purchasing 800 cases of cigarettes in Virginia and reselling them illegally here in the city.
The result of all the smuggling, as Cuomo rightly notes, is lost revenue and more crime for the state. But the answer isn’t more enforcement. It’s lower cigarette taxes.
“While there are small changes to enforcement that could have beneficial impacts on cigarette smuggling,” wrote Tax Foundation economist Scott Drenkard, “I hope the task force also studies the option of leaning less on cigarette tax revenue to fund government functions.”
Drenkard calls New York’s cigarette-tax rates “de facto prohibition.” He compares them to alcohol prohibition during the 1920s, and he argues that taxes here “have caused substantial and lucrative black market activity, undermining of the rule of law, and in some cases, creating violent crime.”
New Yorkers want their governor to enforce the law. But when the criminal code flies in the face of the laws of economics, enforcement won’t make much of a dent.
So long as New York’s cigarette taxes remain off the charts, smugglers will have a huge and irresistible incentive for handsome profits.