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Intended as a boon to public health and the city budget, New York City's new $1.50 tax on a pack of cigarettes has backfired, lighting up tobacco sales for tax-free online retailers and leaving local merchants out in the cold.

By Matthew Zeidman

credit: Obtained from www.nyc.gov.

According to New York Mayor Bloomberg, secondhand smoke kills approximately 1000 New York City-dwellers each year. More important to the average New York smoker, however, is not the health of the man sitting next to them at the bar, but the cost of cigarettes. So, when the City raised the tax on a pack of cigarettes from eight cents to $1.50 on July 1 in order to discourage smoking, New York smokers turned their backs on local bodegas and convenience stores and turned to outside help to satiate their craving: the Internet.

We're not talking about some new type of virtual cigarette, here, but about name-brand cigarettes sold by tax-exempt sources, such as Native American reservations and overseas dealers. New Yorkers who purchase cigarettes from such online retailers can avoid paying high local taxes; as well, cigarettes sold by Web-based vendors are often sold at deeply discounted rates.

Jon, a 21-year-old student at CUNY's Queens College in Flushing, NY who wanted to be identified by his first name only, has been using the website Cheapest Smokes on Earth for several months now. "It's great," says Jon. "I don't know how anyone buys cigarettes over the counter, anymore, when it's so cheap going on the Internet. I get mine for 20 bucks a carton. I'm never going back."

Cheapest Smokes on Earth offers cartons of mostly European-manufactured Camel, Marlboro, and other brand name cigarettes for approximately $20-$25 each, depending on the specific type, waiving standard shipping costs. According to the Smoking and Health Action Foundation of Ottawa, Canada, the average price for a carton in New York State 13 days prior to the city tax increase was approximately $49.22. It's understandable, then, that New York smokers are abandoning neighborhood stores for online outlets.

Native American reservations, such as the Poospatuck Smoke Shop & Trading Post, located in Suffolk County, New York, on Unkechaug tribal land, are a popular source of cheap smokes. Most name-brands sell for $28-$32.25 per carton.

Businesses like the Poospatuck Smoke Shop & Trading Post were not always tax-exempt in New York state. However, in May, 1997, Governor Pataki and the state legislature repealed all state laws governing the taxation of businesses on sovereign Native American land. Said Pataki, "Let me make my message to all Indian nations clear: It is your land, we respect your sovereignty and, if the Legislature acts as I am requesting, you will have the right to sell tax-free gasoline and cigarettes free from interference from New York State." No longer fettered by state interference, Native American reservations became a mecca for smokers eager to escape local and state taxes on tobacco products.

The effect of such low-priced, Internet-accessible alternatives, in the face of skyrocketing New York City cigarette prices, is having a dramatic effect on cigarette sales in the city. According to an October 16 article in The New York Post, sales have gone down 64-percent since the tax hike. However, because the new tax is so much greater than the previous one, the city is still raking in approximately 6.75 times more in cigarette tax revenue than it did under the old eight-cent tax.

So, while it has been better business than usual for the city, owners of bodegas and convenience stores all over the city are struggling to stay afloat, grappling with a huge drop in profit due to their abandonment by local smokers.

Libertarian Jim Lesczynski, asked by the city to testify on the effect of the new tax, warned that a new black market could be created, generating revenue for terrorist organizations who decide to smuggle cigarettes into the city and sell them illegally. In fact, in 2000, 18 people were arrested for smuggling cigarettes from North Carolina, which charges consumers only five cents per pack in taxes. These 18 were allegedly working for the terrorist group Hezbollah.

As neighboring states, such as New Jersey, and consider raising local taxes on cigarettes as well, the likelihood of a black market explosion will only go up. Lesczynski even warns of shootouts between illegal dealers.

Despite the naysayers, however, Bloomberg is not the only promoter of the new cigarette tax. Anti-smoking organizations, such as the American Cancer Society, fully support the city's new tax, the highest in the nation. According to ACS, 14,000 New York City residents die of tobacco-related diseases each year, costing the city $4.1 billion in health care each year.

However, due to the city's $5 billion budget gap, the money raised from the new tax will most likely go straight to paying off the city's debt, rather than being pumped into anti-smoking programs. And while the new tax may prompt some smokers to quit, others will either look to the Internet to seek out new suppliers or simply grin and bear the new cost of their habit. A recent study by MIT economists found that happiness increased among smokers after cigarette tax hikes, because it gave them a previously non-existent incentive to quit.

Anti-smoking activists hope that the new tax will discourage children from starting to use tobacco products in the first place. Because young children normally do not have access to credit cards and cannot travel long distances on their own, Internet suppliers and Native American reservations are not viable options for obtaining cigarettes, and the new tax makes it too expensive for such children, (whose only source of money may be a small allowance), to purchase cigarettes locally, even if they can find storeowners willing to sell to them illegally.

Despite the bite back from smokers, storeowners and civil rights leaders, it seems that the new tax is here to stay. With the looming budget gap and added revenue raked in by the city under the new tax, it is highly unlikely that the tax will be repealed. And while this may be bad news for local proprietors, this is nothing but good news for Internet suppliers such as Cheapest Smokes on Earth and the Poospatuck Smoke Shop & Trading Post, which will only continue to have more business drop in their laps as cigarette prices citywide and nationwide continue to rise.

Related Links:

New York State Lawmakers

Quit Smoking

Smoking Perspectives

Matthew Zeidman is an undergraduate student at New York University, majoring in journalism.

Launched: 12.12.01. Reproduction of material from any ReadMe pages without written permission strictly prohibited. ReadMe © 2002 New York University, Department of Journalism and Mass Communication, 10 Washington Place, New York, NY 10003-6636, (212) 998-7912, e-mail: readme@journalism.fas.nyu.edu