Report: Hochul’s plan to hike cigarette taxes will fuel black market
(The Center Square) — New York Gov. Kathy Hochul’s plans to hike cigarette taxes and expand a flavored vaping ban to other products would fuel black markets and create a fiscal hole for the state to fill, according to a new report by the Tax foundation.
Hochul’s plan, unveiled during her State of the State address earlier this month, calls for raising the per-pack tax for cigarettes from $4.35 to $5.35, making the highest tax of any state even higher. If approved, it would be the state’s first cigarette tax increase in a decade.
The proposal, which must be approved by the state Assembly, also calls for extending New York’s 2020 flavored vaping ban to all other flavored tobacco products.
But Adam Hoffer, the Tax Foundation’s director of excise tax policy, wrote in a new report on Hochul’s proposal that cigarette tax increases and flavor bans are “poor public policy tools” for improving public health and reducing harm.
“If enacted, consumers will go across borders to do their shopping or rely on black-market suppliers,” he said. “Tax revenues will fall, illicit activities will thrive, and law enforcement spending will need to increase.”
He said the revenue implications of a flavor ban for New York would be “significant,” which will create a “fiscal hole” for the state government.
“With menthol cigarettes holding a 40% market share, we estimate that a flavor ban would decrease New York’s revenue by nearly $225 million per year,” he said. “Even with a partial offset from a $1 per pack excise tax increase, the net result would be a roughly $100 million budget hole for lawmakers to address in Albany.”
He estimated 76% percent of that decline will come from revenues earmarked for health care through the New York State Health Care Reform Act.
“The disastrous flavor ban experiment in neighboring Massachusetts caused most state governments to pause any notions of flavor bans,” Hoffer said. “In the first year following the flavor ban, tax revenues fell by $116 million.”
The report also noted New York already leads the nation in cigarette smuggling, with more than half of the cigarettes consumed in the state — about 53.5% — purchased from illegal outlets or smuggled across state lines.
“The foregone revenue from the more than 250 million smuggled packs exceeds $1 billion annually,” he said. “With Gov. Hochul’s proposed changes, that figure could grow substantially.”
While Hochul’s office said the tax hike and expanded flavor band would reduce smoking among young people by 9%, the foundation’s report questioned those claims and suggested the move will produce few health benefits.
“In an environment where more than half of the cigarettes consumed are purchased across borders or in illicit markets, an effect of this magnitude is extremely unlikely,” Hoffer wrote.
