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McKinstry: New York's high cigarette taxes fire up the smuggling
When I was a kid, my parents would pack my two sisters and me into our 1977 Chevy Caprice and schlep us off to New Jersey for a day of clothes shopping.
I hated it.
Despite having a perfectly good mall up the street from our home in Yonkers, my folks thought it was a good use of their time to cross the George Washington Bridge into Jersey. Years later they explained there were no sales taxes across the Hudson River, and that translated into big savings for a family on a budget.
It makes some sense now, but it’s funny to think of the lengths people will go to save a few bucks.
It turns out that some smokers in New York, enabled by dishonest merchants, are trying to save, too, by dodging the taxes on cigarettes.
At the root of it is the state’s $4.35 tax on a pack of smokes, the highest in the nation (add $1.50 if you live in New York City). Compare those rates to 30 cents a pack in Virginia or 45 cents in North Carolina (2011 numbers) and the situation becomes clearer.
A report out today by the Tax Foundation, nonpartisan, nonprofit research institution in Washington, says 61 percent of cigarettes in the Empire State are smuggled across state lines. That puts New York on top of a list of the 50 states. Smuggling in New York has risen 170 percent since 2006, and at the same time, the per-pack tax has climbed 190 percent.
New York is ahead of Arizona, New Mexico and Washington on a list of places with the highest percentages of smuggled tobacco.
See the list here.
The Mackinac Center for Public Policy, a Michigan think tank, analyzed the data and was responsible for the study.
This sort of tax dodging is encouraging bootlegging enterprises. And it comes in many forms: counterfeiting brands and state tax stamps, hijacking trucks, and potentially more serious violent crimes that come with smuggling.
It shows there are unintended downsides to even the best intentioned policies, like getting people to curb their addictive and potentially dangerous habits.
“One consequence of high state cigarette tax rates has been increased smuggling, as criminals procure discounted packs from low-tax states to sell in high-tax states,” wrote the Tax Foundation’s Joseph Henchman and Scott Drenkard. “Growing cigarette tax differentials have made cigarette bootlegging both a national problem and a lucrative criminal enterprise.”
I’m not sure how to snuff out this problem. I don't think prohibition of cigarettes would work. But there have got to be ways to go after those who smuggle or sell pirated brands.
The authors recommend increased police enforcement on highways, levying lower taxes in border areas next to states that have low cigarette taxes, and cracking down on Indian reservations that don't charge taxes when selling smokes to people not from the reservation.
These are all things to consider, as is how that pack of reds got to your local grocery store.