ABC Ignores Role Huge Taxes Play in Driving Black Market on Smokes

           The U.S. Postal Service is helping cigarette bootleggers evade the law, warned the June 18 “World News Tonight.” But while ABC’s Dan Harris explored the legal quandary the postal office faces in preventing tax evasion from Internet sales of tobacco, he left out a key reason for the strong black market in cigarettes: high state tobacco taxes.

            “New York’s attorney general says this is an illegal act taking place nearly every day, in broad daylight, with the help of the United States Postal Service,” Harris began. His story focused on Indian reservations shipping tax-free cigarettes to customers all over the country. “These Web sites that offer those tax-free cigarettes for sale off the reservation are, officials say, illegal,” Harris continued before airing a clip of New York Attorney General Eliot Spitzer (D).

            The ABC weekend anchor then showed a video of Spitzer insisting that his concern with online sales is not lost tax revenue but teenagers getting access to cigarettes from unmonitored Internet sales.

            “The monetary incentive from the state’s perspective, is not what drives us,” insisted Spitzer. “What concerns us is the concern that kids will get access to cigarettes online.”

            Harris didn’t press Spitzer on his claim, even though online news service stateline.org reported last year that Spitzer’s state government lost tens of millions of dollars in tax revenue from online sales.

             “City officials say tax-free cigarettes purchased online contributed to an annual loss of $75 million in revenue for state and local governments,” staff writer Kathleen Hunter reported in her May 3, 2005 report.  New York City “billed 2,600 Big Apple residents” for back taxes from online cigarette purchases, Hunter noted.

            Harris also didn’t tell viewers Spitzer’s constituents in the Big Apple are forced to pay $3 in taxes for each pack of cigarettes. That tax burden is nearly three-fourths the total cost of the $4.12 American smokers pay on average for a pack of cigarettes as reported in February by the activist group Campaign for Tobacco Free Kids.

            According to the Web site for the Federation of Tax Administrators, New York has the tenth highest state excise tax on tobacco at $1.50-a-pack. New York City, the Empire State’s largest urban center, tacks on an additional $1.50 per pack in local excise taxes.

            In 2003, Business & Media Institute adviser Bruce Bartlett cited three studies on cigarette taxes showing the high per-pack tax rates were a public policy failure that has encouraged a black market in cigarette sales. Bartlett found New York City’s cigarette tax hike failed to rake in the cash it was expected to, and that “Internet sales, and sales on Indian reservations cost the state as much as $609 million in revenue in 2001 and almost $900 million in 2002.”

            While tax hikes did drive some smokers to cut back or attempt to quit, “smuggling, out of state purchases, and sales on Indian reservations (where no taxes are collected)” were the main cause of lost tax revenue, wrote Bartlett. “The record is clear that cigarette smokers are not sheep. They do not sit back passively and just pay exorbitant taxes,” he concluded.

            For more on how high taxes on cigarettes drive smokers to Internet sales and smuggling, see Tax Foundation chief economist Patrick Fleenor’s February 2003 study,  “Cigarettes, Black Markets, and Crime.”

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