Gov. Cuomo's Plan To Attack Cigarette Retailers Will Fuel New York's Black Market

More than half of cigarettes consumed in the state are smuggled from elsewhere, thanks to high taxes.

New York Gov. Andrew Cuomo is calling for harsher penalties for untaxed cigarette sales in the Empire State, showing yet again that regulators do not understand the relationship between high taxes and black markets.

New York state has some of the highest cigarette taxes in the country. And in New York City, the prices are even higher: a minimum of $13 a pack. Partly due to these high imposed costs, more than half of the cigarettes consumed within New York are estimated to have been smuggled in from states with lower tobacco taxes. These cigarettes are then resold on the black market in New York for less than the price of legal cigarettes.

Cuomo says his agenda for 2020 includes crafting a new state law that will go after any retailers who bring in cigarettes purchased in other states and then try to sell them. Under Cuomo's proposal, retailers caught selling cigarettes they've smuggled from other states could lose their liquor and lottery licenses and even be shut down entirely.

While some regulators deliberately turn a blind eye to how their own high taxes and complicated regulations lead to black markets (see California's almost comical attempt to legalize recreational marijuana), Cuomo's State of the State release makes it clear that he knows very well that the state's own regulations are feeding this behavior:

One byproduct of the aggressive rate of taxation applied to cigarettes in New York City—currently the second highest rate in the nation—is the continuing incentive for unlawful retailers to evade those taxes by breaking the law.  Some unscrupulous retailers persist in trafficking in cheap untaxed cigarettes, a practice that not only undermines efforts to reduce smoking, but also deprives the State of essential revenue for use in enforcement and public health initiatives. It also places law-abiding retailers at a significant competitive disadvantage, while making it difficult for localities and the State to regulate the price of these products with the goal of discouraging people from buying them.

If passed, Cuomo's law will be used to go after small businesses that are already struggling to turn a profit. Convenience stores operate on tiny margins (often less than 2 percent) and many are dependent on tobacco sales for their profits. The idea that there are tons of "unscrupulous retailers" living high on the hog off smuggled cigarettes is akin to believing that every drug dealer is Pablo Escobar. For every black market tobacco kingpin, there are many more people like Eric Garner, who was confronted by police and ultimately choked and killed partly over suspicion that he was selling untaxed black market cigarettes. We could see more Garners under Cuomo's proposal, which local police will be expected to enforce.

This proposal certainly doesn't bode well for Cuomo's desire to legalize recreational marijuana in New York. Based on the way it taxes cigarettes, New York is likely to have the same problem as California: extremely high taxes and oppressive regulations that will keep the black market fully intact.