NY | 3/5 Cigs Are Smuggled

In 15 states, more than 1 in 5 cigarettes are smuggled. 
In NY State, it's 3 in 5.

The sale of smuggled cigarettes is on the rise nationwide, according to the latest report from the Tax Foundation, an NGO that promotes lower taxes.

The thrust of the report is that state and local governments that increase taxes on tobacco products have created lucrative incentives for black market cigarette trafficking between states. 

As a result, the sale of smuggled cigarettes is on the rise nationwide.

Cigarette taxes are Pigou taxes, which have benefits. They discourage behavior that is bad for public health or reduces the productivity of workers. They raise revenue to offset the higher spending on health care by federal and state governments created by cigarette smoking by paying for remedies for the behavior and for preventive programs. However:

• A Pigou tax doesn't work as it should if it is not collected. It neither discourages the costly behavior nor does it pay for solutions.
• To be specific, New York's Governor Cuomo and Speaker Heastie could help New York State could pay for a lot of things in the budget - or reduce other taxes - if they strengthened programs to collect the lost cigarette tax revenue, which in 2015 may be in the $3 billion range.

The report uses data on smuggling from the Mackinac Center for Public Policy.

• New York State has the highest rate of inbound cigarette smuggling, 58.0 percent.
• The states that are the next most dependent on contraband cigarettes are: Arizona (49.3 percent), Washington (46.4 percent), New Mexico (46.1 percent), and Rhode Island (32.0 percent)
• On the outbound side, the state with the most outbound smuggling is New Hampshire - 28.6 cigarettes are smuggled out for every 100 sold.
• The states with the next-highest outbound smuggling rates are Idaho (24.2 percent), Virginia (22.6 percent), Delaware (22.6 percent), and Wyoming (21.0 percent).

Postscript

Michael Phillips, who is kind enough to watch what I say on this blog and to tell me when he thinks I have it wrong, queries in the comments below whether taxes and regulations against smoking are working. He argues that they are not and evil side effects such as the black market in cigarettes (Eric Garner was selling single untaxed cigarettes) are being ignored.

Michael doesn't provide sources. However, my information is that 45 percent of American adults used to smoke and the Centers for Disease Control reports that, as of 2013, the figure recently broke through the 20 percent floor for all American adults:

Overall, about 18 of every 100 American adults (17.8%) smokes - a reduction of 27 percentage points - pretty significant. The proportion of people who smoke varies for different groups:

• A shade more than 20 of every 100 adult men (20.5%)
• About 15 of every 100 adult women (15.3%)
• Nearly 19 of every 100 adults aged 18–24 years (18.7%)
• About 20 of every 100 adults aged 25–44 years (20.1%)
• Nearly 20 of every 100 adults aged 45–64 years (19.9%)
• Nearly 9 of every 100 adults aged 65 years and older (8.8%)

(In the report, current smokers are defined as persons who reported smoking at least 100 cigarettes during their lifetime and who, at the time they participated in a survey about this topic, reported smoking every day or some days.)

The New York Times has just editorialized that smoking is even worse for us than we thought. There are still 42 million Americans who smoke. We should be doing more to reduce smoking, not less.

PIGOU TAX | State Tobacco Revenues

This is a chart from the American Lung Assn. website.
http://www.stateoftobaccocontrol.org/state-grades/.

The Tax Foundation has a new Monday Map on Tobacco Revenue and ranks each state by the percentage of state and local taxes raised by tobacco taxes.

This is different from the usual cig-tax chart showing taxes as a dollar amount per pack of 20 or as a share of purchase price. New York City ranks high on such charts.

Today's Tax Foundation chart may be found here: http://taxfoundation.org/blog/monday-map-tobacco-tax-revenue-percentage-total-state-local-tax-revenue.

The light-colored low-tobacco-tax states like South Carolina (surprise!), with 0.2 percent of its revenues from tobacco taxes, are the ones with low taxes. The highest-taxed tobacco is in New Hampshire, ranked #50 (puzzle: if DC is included with a rank as a state, how do they only come up with 50 states?), with 4.4 percent of their revenue coming from tobacco. This state is all in black. The second-last state, Delaware, is only shown with a dark shade.

Am I wrong to see an anti-tax bias at work in the shading and ranking of the states? In fact, the Tax Foundation may be nonpartisan but its work is focused on expressing indignation at high taxes. In this case we have two questions to ask:

1. Consistency. One reason tobacco taxes bulk higher in New Hampshire than in other states is that NH has low overall taxes. If overall taxes are low, then New Hampshire's percentage of revenue from tobacco will be higher than another state where tobacco is taxed at the same rate relative to a carton of cigarettes. NH is being penalized for what the Tax Foundation espouses - a low-tax environment.

2. Pigou Tax. Economists disagree about lots, but no one I know doesn't like (in theory) Pigou taxes.  Pigou argued for taxing "bads" rather than "goods". Don't tax labor, he said, but tax bad things, negative externalities such as pollution, smoking, city congestion. That way, we reduce the production of these bad things and create revenues for their remediation. New York City has high cig taxes, not to mention smoking bans (which are like super-high taxes), and smoking has dropped.

Now if you like Pigou taxes, you would reverse the ranking and the shading. New Hampshire becomes #1 and has the lightest color. South Carolina has the darkest color and is ranked (I suggest) #51. Something like that may be found here: http://www.stateoftobaccocontrol.org/state-grades/.