In New York City, a pack of Marlboro Reds will cost you nearly $13.00. That’s because not only does New York State charge $4.35 per pack on cigarettes – the highest tax,
by state, on cigarettes in the country – but New York City tax adds an
additional $1.50, bringing the combined local/state tax rate to $5.85.
Federal excise taxes on cigarettes boost the rate an additional $1.01,
upping the total to $6.86 in taxes alone to buy a pack of cigarettes in
the Big Apple AAPL +0.28%.
Federal, state and local taxes now account for nearly half of the cost of the average pack of cigarettes across the country. However, the disparity in tax burden from the top (New York, by state) and the bottom (Missouri, by state, at just 17 cents per pack) makes it worth your while to buy cigarettes in low-tax states and bring them into higher-tax states. There is, however, one not-so-teensy problem: it’s potentially illegal.
Under the Contraband Cigarette Trafficking Act, it is a felony for any person to ship, transport, receive, possess, sell, distribute, or purchase more than 10,000 cigarettes (500 packs) “that bear no evidence of state cigarette tax payment in the state in which the cigarettes are found if the state requires a stamp to be placed on cigarette packages to demonstrate payment of taxes.” In most states, it’s also a crime to sell cigarettes without a proper license and/or tax certificate. Those crimes are generally classed as misdemeanors.
So why bother? It’s quite profitable. The ATF (Bureau of Alcohol, Tobacco, Firearms and Explosives) figures that solely by purchasing cigarettes in a low tax state and reselling them in a high tax state, a seller can make a profit (report downloads as pdf) up to $23,000 on 10 cases of cigarettes – that’s considered a car load. Profits go up to $90,000 on 50 cases for a van load and finally, up to $465,000 for 200 cases for a small truck load. Those sorts of dollars likely explain why New York sits atop the list of smuggling rates in the country. According to The Mackinac Center for Public Policy, nearly 60% of cigarettes sold in New York are smuggled into the state.
Cigarette taxes serve two real purposes: raising revenue (don’t let the pols tell you different) and an attempt to change behavior. The latter may be working but not necessarily in the ways we hope. It’s true that higher taxes may stop some folks from smoking but it’s also clear from the numbers that the sale and purchase of cigarettes is moving underground. Expensive or not, people still like to smoke.
Eric Garner knew that all too well. The 43-year-old Staten Island man could often be found on the streets selling loose cigarettes. The New York Times reported that Garner had been arrested more than 30 times, mostly for selling loose cigarettes brought into New York in order to avoid tax. He had been arrested at least twice in 2014 alone for selling loose cigarettes.
The arrests were clearly bothersome to Garner – but not so annoying that he would stop. Fifty-year-old Lonnie “Loosie” Garner (same last name but no indication of relation), explained why in 2011, saying:
Despite having a criminal history, Eric Garner denied doing anything wrong on the afternoon of July 17, telling the officer that came to arrest him that day, “I didn’t do nothing. Every time you see me, you want to harass me, you want to stop me.” He had, he tried to explain, just broken up a fight, a claim that seems to be supported by eyewitnesses and video:
(Please note that clicking on the video may be disturbing for some readers.)
He refused to put his arms behind his back. The police made an attempt to arrest him nonetheless. Several officers brought the 6’3″ 350-pound Garner down – and allegedly putting Garner in a chokehold. Garner, whose health problems included asthma, screamed, “I can’t breathe” at least six times. And then, Garner went silent and was eventually pronounced dead.
The police report downplayed the incident, claiming there was no chokehold and that Garner had not been in distress. The coroner, however, disagreed, officially ruling Garner’s death a homicide by chokehold and chest compression. The president of the police union has denied the allegations, saying that the police actions were proper and did not involve a chokehold. One of the officers involved in the incident, Daniel Pantaleo, has surrendered his badge and gun, pending investigation. Another has been assigned to desk duty.
The fact that those officers came upon Garner on this particular day was no coincidence. Garner had been arrested for those loose cigarettes before. He’d been warned about those loose cigarettes before. And folks had complained before. That’s why Chief Philip Banks III – the top ranked uniformed officer in the NYPD – sent an officer to investigate complaints about the sale of loose cigarettes. Banks had received complaints about the behavior since March: one of those complaints specifically identified “a man named Eric.”
Why target the sale of loose cigarettes? Authorities say it’s a quality-of-life issue. And it is clearly a crime. But I can’t help but wonder: would this be a different conversation if it had been a different sort of crime? Like murder? Or child molestation? Or even selling hard drugs? Are we, by driving up the cost of cigarettes (ostensibly to stop the sale of cigarettes and save lives), actually creating a bigger problem? Does it make sense that criminals are willing to take the same kinds of risks to smuggle and sell cigarettes as they are for other kinds of crimes? In other words, if driving up the costs of cigarettes is good tax policy (which I’m not sure that it is), is it good overall policy?
As the discussion moves forward about what happened and whether it was appropriate, I do hope what doesn’t get left out is what lead to police being on that street on that day. We took a legal substance (cigarettes) and taxed it enough to make the illegal sale attractive – so attractive that more than half of the cigarettes sold in New York are done so illegally. More than half. And then we told our police to make it priority to take those sellers down. And the result was tragic.
Am I suggesting that those who voted to raise cigarette taxes should have had a crystal ball that would have predicted this particular result? Of course not.
And to be clear, I’m not equating potentially bad tax policy with homicide – they are not remotely similar. And I’m not implying that criminal behavior is excusable – you don’t get a pass just because you don’t agree with the law.
But I am suggesting that sometimes tax policy is bigger than numbers in a column. There are real, human factors to consider. And attempting to stop one set of behaviors by simply raising taxes might not stop the bad behaviors after all. It might, as it did in this case, just lead to a whole other set of complications.
Federal, state and local taxes now account for nearly half of the cost of the average pack of cigarettes across the country. However, the disparity in tax burden from the top (New York, by state) and the bottom (Missouri, by state, at just 17 cents per pack) makes it worth your while to buy cigarettes in low-tax states and bring them into higher-tax states. There is, however, one not-so-teensy problem: it’s potentially illegal.
Under the Contraband Cigarette Trafficking Act, it is a felony for any person to ship, transport, receive, possess, sell, distribute, or purchase more than 10,000 cigarettes (500 packs) “that bear no evidence of state cigarette tax payment in the state in which the cigarettes are found if the state requires a stamp to be placed on cigarette packages to demonstrate payment of taxes.” In most states, it’s also a crime to sell cigarettes without a proper license and/or tax certificate. Those crimes are generally classed as misdemeanors.
So why bother? It’s quite profitable. The ATF (Bureau of Alcohol, Tobacco, Firearms and Explosives) figures that solely by purchasing cigarettes in a low tax state and reselling them in a high tax state, a seller can make a profit (report downloads as pdf) up to $23,000 on 10 cases of cigarettes – that’s considered a car load. Profits go up to $90,000 on 50 cases for a van load and finally, up to $465,000 for 200 cases for a small truck load. Those sorts of dollars likely explain why New York sits atop the list of smuggling rates in the country. According to The Mackinac Center for Public Policy, nearly 60% of cigarettes sold in New York are smuggled into the state.
Cigarette taxes serve two real purposes: raising revenue (don’t let the pols tell you different) and an attempt to change behavior. The latter may be working but not necessarily in the ways we hope. It’s true that higher taxes may stop some folks from smoking but it’s also clear from the numbers that the sale and purchase of cigarettes is moving underground. Expensive or not, people still like to smoke.
Eric Garner knew that all too well. The 43-year-old Staten Island man could often be found on the streets selling loose cigarettes. The New York Times reported that Garner had been arrested more than 30 times, mostly for selling loose cigarettes brought into New York in order to avoid tax. He had been arrested at least twice in 2014 alone for selling loose cigarettes.
The arrests were clearly bothersome to Garner – but not so annoying that he would stop. Fifty-year-old Lonnie “Loosie” Garner (same last name but no indication of relation), explained why in 2011, saying:
The tax went up, and we started selling 10 times as much. Bloomberg thinks he’s stopping people from smoking. He’s just turning them onto loosies.Loosies is the street term for single, unpackaged cigarettes. Selling unpackaged cigarettes at a discount (meaning that you’re not charging tax) can be profitable: “Loosie” Garner claimed that he sold about 2,000 cigarettes a day, pocketing $120 to $150.
Despite having a criminal history, Eric Garner denied doing anything wrong on the afternoon of July 17, telling the officer that came to arrest him that day, “I didn’t do nothing. Every time you see me, you want to harass me, you want to stop me.” He had, he tried to explain, just broken up a fight, a claim that seems to be supported by eyewitnesses and video:
(Please note that clicking on the video may be disturbing for some readers.)
He refused to put his arms behind his back. The police made an attempt to arrest him nonetheless. Several officers brought the 6’3″ 350-pound Garner down – and allegedly putting Garner in a chokehold. Garner, whose health problems included asthma, screamed, “I can’t breathe” at least six times. And then, Garner went silent and was eventually pronounced dead.
The police report downplayed the incident, claiming there was no chokehold and that Garner had not been in distress. The coroner, however, disagreed, officially ruling Garner’s death a homicide by chokehold and chest compression. The president of the police union has denied the allegations, saying that the police actions were proper and did not involve a chokehold. One of the officers involved in the incident, Daniel Pantaleo, has surrendered his badge and gun, pending investigation. Another has been assigned to desk duty.
The fact that those officers came upon Garner on this particular day was no coincidence. Garner had been arrested for those loose cigarettes before. He’d been warned about those loose cigarettes before. And folks had complained before. That’s why Chief Philip Banks III – the top ranked uniformed officer in the NYPD – sent an officer to investigate complaints about the sale of loose cigarettes. Banks had received complaints about the behavior since March: one of those complaints specifically identified “a man named Eric.”
Why target the sale of loose cigarettes? Authorities say it’s a quality-of-life issue. And it is clearly a crime. But I can’t help but wonder: would this be a different conversation if it had been a different sort of crime? Like murder? Or child molestation? Or even selling hard drugs? Are we, by driving up the cost of cigarettes (ostensibly to stop the sale of cigarettes and save lives), actually creating a bigger problem? Does it make sense that criminals are willing to take the same kinds of risks to smuggle and sell cigarettes as they are for other kinds of crimes? In other words, if driving up the costs of cigarettes is good tax policy (which I’m not sure that it is), is it good overall policy?
As the discussion moves forward about what happened and whether it was appropriate, I do hope what doesn’t get left out is what lead to police being on that street on that day. We took a legal substance (cigarettes) and taxed it enough to make the illegal sale attractive – so attractive that more than half of the cigarettes sold in New York are done so illegally. More than half. And then we told our police to make it priority to take those sellers down. And the result was tragic.
Am I suggesting that those who voted to raise cigarette taxes should have had a crystal ball that would have predicted this particular result? Of course not.
And to be clear, I’m not equating potentially bad tax policy with homicide – they are not remotely similar. And I’m not implying that criminal behavior is excusable – you don’t get a pass just because you don’t agree with the law.
But I am suggesting that sometimes tax policy is bigger than numbers in a column. There are real, human factors to consider. And attempting to stop one set of behaviors by simply raising taxes might not stop the bad behaviors after all. It might, as it did in this case, just lead to a whole other set of complications.
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