Hefty tax hike spurs black market sales

Four years ago an Associated Press reporter conducted a little experiment. He walked down a busy street in New York City picking up empty cigarette packages.

What he found might be bad news for Pennsylvania.

New York is home to one of the nation’s highest taxes on cigarettes, with a state excise tax of $4.35 for every pack of 20 cigarettes; New York City charges an additional $1.50 excise tax, meaning every pack in the Big Apple has a $5.85 in tax added to the price.

Excise tax means a licensed wholesaler puts a stamp on each pack indicating the tax has been paid on that pack. There are different colors for the state tax and the city tax.

Pennsylvania has an excise tax of $1.60 per pack of 20 cigarettes. Philadelphia has an additional excise tax of $2, making its total tax $3.60 per pack.

Next month, Pennsylvania is raising its tax on cigarettes by $1 — the new tax will total $2.60 per pack statewide, $4.60 in Philadelphia.

The increase is intended to generate $430 million to help balance the state’s $31 billion budget. That’s another dollar for every one of the estimated 430 million packs of cigarettes that will be sold in Pennsylvania in the coming 12 months.

The idea is that taxing a vice like cigarettes might encourage some smokers to give up the habit.

But the reporter in New York found something else.

Those excise stamps were missing from most of the empty cigarette packs he’d picked up. Most of the rest had stamps from Virginia — a tobacco-producing state whose tax is still only 30 cents a pack.

The clear implication is that a strong black market for cigarettes exists in New York State. A bootlegger could easily stuff 50 cases of Virginia cigarettes into a van and sell them taxfree in New York while evading more than $160,000 in tariffs.

That’s exactly what’s happening. Estimates generally put the black market share of cigarette sales across New York state at 60 percent or higher.

Has Pennsylvania just set itself up for the cultivation of a similar black market?

At least one state legislator thinks that’s a possibility, and that it could lead to grave consequences.

Rep. Rick. Saccone, R-Allegheny, argued before the House that the new tax not only unfairly burdens the poor, but that smuggling rings that might result from inflated cigarette prices could end up bankrolling violent extremists.

“We’re prepared to disregard the ugly consequence that driving the price too high nurtures illegal tobacco sales, which have been connected to funding terrorism against us. I’ll say that again, folks: Illegal tobacco sales, price driven too high, has been connected to at least several cases of funding terrorism against us in multiyear investigations over the last decade and a half,” Saccone said.

He cited a 2015 State Department report, “The Global Illicit Trade in Tobacco: A Threat to National Security,” in which the authors wrote: “Internationally, it fuels transnational crime, corruption, and terrorism . ... The illicit trade in tobacco products remains a lucrative revenue stream for many criminal actors and illicit networks.”

Let’s make this the last increase on cigarette taxes in Pennsylvania. If the additional dollar per pack doesn’t curb one’s smoking habit, then no additional price hike is ever likely to.

“Estimates put the black market share of cigarette sales across New York state at 60 percent or higher. Has PA set itself up for the cultivation of a similar market?”