"Increasing the cigarette tax saves lives," New York Mayor Michael Bloomberg declared last year while pushing a 19-fold increase in the city's levy. To the contrary, suggests a recent report from the Cato Institute: Increasing the cigarette tax can be deadly.
In July the combined state and local cigarette tax in New York City hit $3 a pack, the highest in the country. Patrick Fleenor, former chief economist at the Tax Foundation, argues that the steep hike is bound to promote the sort of black market activity that has been associated with violence in the past.
During the first four months after the tax hike, according to official figures, cigarette sales in the city fell by 50 percent compared to the same period in 2001. But that doesn't mean New York has half as many smokers as it did before Bloomberg came to their rescue. The official figures do not reflect border shopping (which nowadays includes online sales as well as purchases in other states) or bootlegging.
As Fleenor shows, New York has a long, bloody history of cigarette bootlegging, with smugglers fighting among themselves, hijacking trucks, and robbing dealers. "The enormous profits that can be made smuggling cigarettes into New York have lured smalltime crooks, mobsters, street gangs, and terrorists into the racket," he writes. "Those criminals have engaged in a host of violent activities, including murder, kidnapping, and armed robbery, to earn and protect their illicit profits….If history is any guide, the involvement of several rival groups in large-scale cigarette smuggling operations that also face competition from small-scale bootleggers creates a very volatile situation."
If you think Fleenor's warnings are overwrought, consider what New York Gov. Malcolm Wilson said in 1974. "One major incentive to organized crime," he observed, "is the high New York City cigarette taxes, piled on top of the state tax, which have made that city the promised land for cigarette bootleggers." Taking inflation into account, the tax when Wilson spoke was less than half what it is now.