High NY tobacco taxes boost cross-state smuggling

Every year, almost half a million people in the United States die from smoking related diseases. US states are allowed to set their own tobacco taxes, meaning some states have raised taxes further than others, to try to discourage people from lighting up.

New York City has some of the highest tobacco taxes in the country. But that's created a soaring black market for cigarettes, with the latest data showing adult smoking is actually on the rise. 

Selling cigarettes legally at corner stores like these in upper Manhattan has been going on for decades. But faced with higher prices, smokers are turning to the underground market. If you know a store owner, there's a good chance you can buy a pack of illegal smokes. You can also easily buy them on the street. Scott Drenkard, an economist at the Tax Foundation, says nearly 60 percent of cigarettes bought in New York City are contraband.

"Because the taxes are so high on these products in some jurisdictions, it becomes profitable for criminals to bring them in from other places." He said.

The average cost for a pack of cigarettes in New York City is almost 15 dollars. That's because there's a state tax of $4.35, a city tax of $1.50 and a federal tax of $1.01. That's almost three times what it costs in the state of Virginia, the source of nearly half the smuggled cigarettes.

"Despite the fact that there's black market sales going on, we continue to see smoking rates decline. One of the major reasons for that is the price of tobacco products. So it's still working." Said Seilback, Public Policy VP.

Seilback says data has shown for every 10 percent increase in the cost of cigarettes, there is a seven percent drop in teens who smoke and four percent of adults. But in recent years, adult smoking in New York City has crept up. Seilback believes the solution lies in raising taxes further and beefing up law enforcement. Drenkard says the problem is high taxes are forcing smokers to find other ways to get cigarettes.

"We can't expect to tax a product at that kind of dramatic percentage and not expect some kind of unintended consequence for consumers to react by moving to the black market." Said economist Scott Drenkard.

New York is showing no signs of lowering cigarette taxes. It IS trying to crack down on the black market. Last year, it established a new task force to deal with the problem with the aim of getting rid of smugglers and ultimately bringing down smoking rates.