WalletPop

A few weeks ago, I wrote a post in which I mentioned New York's plans to raise taxes on cigarettes. Well, the bill passed, and cigarettes are now $9 a pack in New York City. While this is sure to increase tax revenue in the short run, it's not hard to see how it will backfire.

The first negative side effect is the fact that it will encourage criminal behavior on the part of ordinarily law-abiding citizens. According to a report by the Independent Budget Office, earlier tax increases led to massive growth in the purchases of illegal cigarettes. In fact, in 2006, 27% of NYC smokers and 34% of upstate smokers purchased "under-taxed" cigarettes. Now that the taxes on a pack of cigarettes have more than doubled, those figures are expected to skyrocket.
One of the easiest ways to get "under-taxed" cigarettes is through Indian reservations. For example, the Poospatuck Indian Reservation, located just 60 miles outside of New York City, is a major source for tax-free smokes, and its website, "The Original Poospatuck Smoke Shop and Trading Post," is primarily a portal for ordering tobacco products (although it also offers moccasins and coffee). The Poospatucks take their tax free smokes pretty seriously, stating that "[We were] a leader in the fight to protect the sovereignty of Unkechaug Nation lands. We are proud of our contribution to the struggle and will continue to resist any attempt to charge, collect or impose any duty on our territory. This is not just about cigarettes or gas, this is the lawful exercise of Sovereignty [...] The consumer who purchases from our site not only buys at a great discount, but also makes a statement about protecting the rights and obligations of our people."

Cheap smokes and a political statement? Hell, sign me up!

For the less politically motivated addicts, there are also internet sites that will sell cigarettes at a considerable discount and ship them to New York addresses. Although these sites are of questionable legality, enforcement is very difficult.

Governor Spitzer worked with credit card companies and postal regulators to reduce the impact of online retailers, but it's not too hard to circumvent the law on this one. Similarly, it's pretty easy to buy a trunkload of cigarettes while on vacation in Virginia or South Carolina. With the rising taxes, this sort of low-level smuggling will probably skyrocket, given the fact that it is a quick and relatively safe way to make a lot of money. It's not hard to imagine cash-strapped yuppies trying out bootlegging, particularly when a couple of runs could cover a semester's college tuition, a set of braces, or half a tank of gas.

Of course, the biggest source of cheap cigarettes will be hijackers, and therein lies another major downside to the tax hike. Historically, Prohibition was the greatest gift that the United States ever gave to organized crime. Prior to that, the mafia was largely composed of low-scale thugs involved in numbers running and prostitution, but the influx of cash from smuggled liquor gave them a big boost of adrenalin and laid the groundwork for their later expansion into unions and narcotics. Even now, it's not hard to find cigarettes that "fell off the truck." In fact, "fell off the truck" is the major cigarette retailer in my neighborhood, where I'm constantly bugged by guys selling loose packs of Newports.

By the way, can anyone tell me why Newports are the official cigarettes of the inner city?

While they may bring in a little cash flow, New York's recent tax decisions are going to put a lot of wear and tear on law enforcement in the city. Furthermore, as anti-smoking lobbyists are pushing these sorts of laws across the country, it's not hard to imagine a whole new era of bootlegging and smuggling.

Welcome to 1920!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. While he doesn't really believe that the 1920's will return, he is hoping that the fedora will make a comeback.