Black Markets

New York Creates Massive Cigarette Black Market, Wants Virginia to Fix It

Because lowering taxes to reduce the incentive for smuggling is out of the question

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Assef Elweter

With state cigarette taxes at $4.35 per pack and the Big Apple piling another $1.50 on top of that, New York has become a major destination for smuggled smokes. Up to 60 percent of all cigarettes sold in the state are smuggled from elsewhere (The Mackinac Center, which tracks these things, puts the number at 56.87 percent for 2012). By contrast, Virginia's taxes per pack are only 30 cents, which makes it an excellent source for all of those smokes headed up I-95 to the Empire State. Logically enough, at least in the context of the political world, New York officials are concerned and think Virginia should do something.

From the Richmond Times-Dispatch:

Asked why Virginia should be concerned, [New York City Sheriff Joseph] Fucito said, "I would start with organized crime, which clearly has been established in Virginia. There are a lot of groups that are using this money for their purposes and they've set up a large network here in New York and in Virginia."

"I also believe in the good-state policy. If we were doing something in New York that was causing Virginia a tremendous amount of harm, would Virginia be satisfied with our answer: 'Well, it's not illegal up here,'?" Fucito said. "The level of violence, as you're beginning to see, will increase because of competition: who will control this flow of material to New York, who's selling it to people in New York. That's all spill over. That's the effect of crime — it spills over into other areas."

Let's review this logic again, shall we? The state of New York, and New York City, have hiked taxes so high that they've created an irresistible gravitational pull for underground entrepreneurs great and small who can find a happy source of supply simply by picking a jurisdiction, any jurisdiction, that doesn't similarly view smokers with quite the same degree of hunger with which Dracula eyes a bared throat. In particular, as the Virginia State Crime Commission points out, "In Richmond, Virginia, a carton of premium cigarettes costs a consumer approximately $40-$45. In New York City, a carton of premium cigarettes costs a consumer approximately $120-$150." The commission estimates the profit on one load of 750 cartons as up to $43,000.

Virginia State Crime Commission

Experience on the ground bears out the estimates. New York City went after a single delivery service for transporting 25 tons of untaxed cigarettes. That's a single (Virginia-based) company that officials stumbled across. Never mind the serious criminal operators.

And somehow, this opportunity for illicit profit in a high-tax-fueled black market, created by New York officials' avarice, is supposed to be Virginia's problem. Never mind its own policies—a less insane (on this issue) state government is supposed to adjust its policies and unleash its cops to address a situation that New York created.

In the world of politicians, there's no such thing as admitting that a tax is too sky-high to be enforced.

Well, OK. New Hampshire actually cut its tax by a dime—and benefited from increased sales to neighboring states. Now that's smart.

New York, of course, isn't the only state to create a black market by trying to milk its residents. The Tax Foundation handily presents the flow of cigarettes captured in Mackinac's data.