Bloomberg Brand Cigarettes

A new report out from the city's Independent Budget Office sheds yet more light on the sick relationship between the city government — and federal and state governments — and cigarettes. The report, titled "Higher Cigarette Tax Has Led to More Tax Revenue, More Tax Evasion," is illuminating reading for anyone suspicious that more harm than good results from excessive excise on cigarettes, such as the $3 a pack in city and state levies New Yorkers are forced to pay. It turns out that, while ostensibly aiming to curb smoking, Mayor Bloomberg and other officials who have, in effect, gone into the cigarette business have hooked government on the revenues while barely making a dent on smoking.

This is underscored in the new study. It found that the enormous increase in cigarette taxes that the city put through in 2002 — raising the city tax rate to $1.50 a pack from 8 cents a pack — hardly touched the proportion of the population of New Yorkers who smoke. Smoking dropped to 19.2% in 2003 from 21.5% in 2002. The size of that drop is so small that revenues have skyrocketed despite it. City tax revenue derived from cigarettes has jumped to $123 million a year, up from under $30 million in 2002. So the newly minted tobacco tycoon, Mayor Bloomberg, has proposed raising the tax even further, by another 50 cents. Past experience suggests such an increase wouldn't cause many to quit smoking but could, according to the mayor, bring in another $20 million in revenue.

Such a windfall would come, the new study suggests, at the cost of even great tax evasion. According to the IBO report, the city loses more money in tax evasion today than it used to bring in total from the 8 cent a pack cigarette tax — $40 million last year alone. New Yorkers can be more than a little suspicious of numbers culled from health department surveys of where New Yorkers have been procuring their illegal smokes — people are likely, shall we say, to underreport. The IBO report shows that around 27% of New Yorkers admit to purchasing "under-taxed" cigarettes. Of those admittedly law-skirting folks, 71% say they buy out of state, 31% from Indian reservations, 24% duty-free stores, 8% from toll-free numbers, and 6% from the Internet.

Then there is the cigarette tax's regressiveness, which is only magnified by patterns in tax evasion. The IBO report reckons that the ability of a person to evading the cigarette taxes is directly tied to his or her level of education. And not only are the poor getting hit hardest by the cigarette tax, but small businessmen — bodega owners who sell legal, over-taxed cigarettes — are getting hit hard as legal sales shift over into the gray and black markets. While there's been almost no decline in smoking, the IBO report shows that between 2002 and 2003, taxed sales fell by 42%.

Last year the mayor opposed efforts to raise the legal smoking age to 19 or 21 years of age. When was the last time the mayor had opposed any measure that might have a chance of causing fewer people to smoke? Could it be that, like so many other politicians, Mr. Bloomberg has become addicted to the cigarette excise he has put through on tobacco? The bottom line of the governmental enterprise he manages depends on people of all ages lighting up. His main problem isn't keeping people smoking. It turns out they enjoy that. His main problem, the new IBO report makes clear, is keeping smokers' money from slipping through his grasp.