The go-to plan for cash-strapped states—an increase in the tax on cigarettes—has some holes in it. In July, the New York State cigarette tax was increased to $4.35 a pack, which becomes $5.85 when combined with the city's own levy. However, the Post reports that revenue from cigarette sales was only $125 million last month, compared to $119 million from the same month a year before—hardly equivalent to the 58% increase in tax, and barely helpful to the $9.2 billion state budget deficit.
Convenience store owners report that cigarette sales have fallen anywhere from 25-35% since the hike, and New York State only sold 28.7 million cigarette tax stamps this July, compared to 43.1 million in July of 2009. The logic of the tax is sound—that because cigarettes are addictive, consumers will have no choice but to throw down the beans no matter the price tag. Consequently, any decrease in the number of sales after a tax is usually more than made up for by the increase in revenue. But did this tax go too far?
Governor Paterson seems to have underestimated the proximity of tax-free reservations in Western New York and Long Island as well as low-tax states such as Pennsylvania and Vermont—where compared to NY, they practically give away cancer sticks for free. Cigarette revenue has increased up to 45% in those areas. In fact, a quick glance at this map of countrywide cigarette excise tax rates indicates that a road trip to Louisiana is in order.
