Higher Cigarette Tax? What About the $1 Billion That's Going Uncollected?

ALBANY, NY (01/12/2010)(readMedia)-- "It's mind boggling that our Governor is scanning the horizon for higher cigarette taxes when there's a billion dollars of uncollected cigarette tax revenue right at his feet, waiting to be put to good use," said James Calvin, President of the New York Association of Convenience Stores.

An existing state law requires collection of taxes on sales of cigarettes by Native American retailers to non-Indian customers, but Governor Paterson refuses to enforce it. Consequently, according to an estimate prepared for NYACS by economist Brian O'Connor Ph.D. in March 2009, the state is losing $1 billion a year in tax revenue that could help close current and future budget deficits.

Recapturing that money should be the focus of any new cigarette tax initiative, not a higher tax rate that would only serve to worsen the state's cigarette tax evasion epidemic.

"By quintupling the cigarette tax in the past 10 years – from 56 cents a pack to $2.75 – New York quintupled the incentive for smokers to dodge the tax, without closing off established tax-avoidance channels," Calvin said. "As a result, today, half the cigarettes consumed in New York are purchased without one penny of New York State tax being collected."

"Experience shows that every time you increase the state cigarette excise tax, you drive more smokers to the tax-free side of the street, making the revenue drain even worse," Calvin continued. "In the process, it chases business away from tax-collecting stores like ours. It thwarts anti-smoking efforts by eliminating the financial incentive to quit. And it rewards dealers who are beyond the reach of health department monitoring to detect and punish underage sales. Indian tribes, Internet tobacco vendors, and bootleggers win. Taxpayers, small businesses, and public health lose."

"Rather than spinning our wheels by raising taxes for the umpteenth time," Calvin suggested, "let's focus on enforcing the Tax Law equally for a change, so the state comes out ahead."

Link to Dr. O'Connor's report: www.nyacs.org/documents/09OConnortaxstudyupdate.pdf