In July, when Mayor Michael Bloomberg signed a bill raising New York City's cigarette tax to $1.50 a pack, he said he didn't really want the money. He just wanted to "save people's lives."
"If it were totally up to me," he said, "I would raise the cigarette tax so high the revenues from it would go to zero."
By equating zero revenue with zero smoking, Bloomberg implied that New Yorkers who refuse to pay the highest cigarette taxes in the country—$3.39, including the state and federal levies—will have no choice but to quit. In the real world, however, smokers have alternatives.
Rather than pay $7.25 for a pack of Camels, for instance, they can buy them online for $2.70. Or they can buy them untaxed in New York, courtesy of smugglers who transport cigarettes from low-tax states in the South to high-tax states in the Northeast. The cigarette tax in New York City is now more than 100 times the tax in Virginia.
Last year the FBI arrested 17 people accused of smuggling cigarettes from North Carolina to raise money for the terrorist group Hezbollah. The government said the ring was earning as much as $10,000 with each van load.
As of July, 17 states had raised their cigarette taxes this year, multiplying the potential profits for terrorists and other unsavory characters.
Map chart (not available online): State Cigarette Tax Rates (per pack as of October 1, 2002, based on legislation enacted in July or earlier)