This State Got a Harsh Lesson in Economics
Government actions have unintended consequences, as New York State is learning.
Years ago the Empire State endeavored to curb smoking by slapping an onerous tax on cigarette consumption. This was part of a nationwide trend, but New York's tax is obscenely high, and it appears that now, there are consequences:
New York is reaping the whirlwind of sky-high cigarette taxes with a wave of smuggling decimating the state’s revenue.
New York holds the dubious honor of having the highest cigarette taxes in country, with the average pack of smokes in New York City costing as much as $10.60.
New York raised taxes on cigarettes to $4.35 in 2010 from $2.75. In total, cigarette taxes have increased by 190 percent since 2006. The sharp rise has resulted in a raft of unintended consequences which are dealing a significant blow to the state’s finances.
New York State Comptroller Thomas DiNapoli reports New York’s revenue from cigarette taxes has plunged by $400 million over the past five years.
According to the The New York Post, a separate study by National Academies of Sciences, Engineering, and Medicine shows the state lost a hefty $1.3 billion in uncollected taxes each year because smokers switched to cheaper alternatives.
Smokers responded to higher prices not by shelling out more cash at the store but by turning to the black market, crossing state lines and buying cheaper brands, such as Seneca, from Native American outlets.
The last 10 years have a been a boon to organized crime, with 58 percent of New York’s cigarettes supplied from out-of-state, according to the Tax Foundation. The number of packs bought paying the full tax has also collapsed by 62 percent.
In addition to all the lost revenue, the state's black market has proven to be an enforcement nightmare, leading to disagreements with other states and Native American groups; and the artificially high price has created a black market that some suggest has created a revenue stream for terrorists.
In sum, onerous taxes fail when you have black markets and mobile consumers. It's a lesson New York should know all too well. The state, which is almost completely reliant on Wall Street for revenue, is regularly listed as one of the worst states to own a business, and its across the board onerous taxation and regulation has made it one of the states best known for bleeding people. Pretty soon, it will have more than cigarette tax revenue to worry about.