New York Considers Hiking Cigarette Tax…Again

Despite the economic climate and anti-tax wave rolling across the country, New York is once again proposing tax hikes on tobacco. Senate Bill S. 2981 would add an additional $1.65 tax to the already staggering $4.35 the state levies in taxes on a pack of cigarettes–a move likely to upset smokers in the Empire State and potentially deliver little additional revenue to the state’s coffers.

Since raising its tobacco tax last year, New York has seen cigarette sales plummet, as of November 2010, by a whopping 27 percent. Meanwhile, both Pennsylvania and Vermont have seen their cigarette sales rise as New Yorkers looking for a bargain have crossed the border to load up on smokes, thus depriving the state of revenue some had hoped would help it close its yawning budget gap.

Some observers believe that this time, if another hike is put through, the state could actually lose money. Several Northeastern states– New Jersey, New Hampshire and Rhode Island— have been exploring the idea of reducing the tax they levy on each pack of cigarettes to spur economic recovery and enhance revenues. A recent study conducted in New Hampshire demonstrated that a 10 cent cut could result in additional tax money flowing to the state’s treasury.

With study after study showing that tobacco tax increases act like tax cuts (i.e., as the tax goes up, the revenue derived from it falls), New York would do well to consider following suit. But don’t bank on it happening anytime soon.