The Associated Press State & Local Wire

Think tank: City's cigarette tax would snuff state revenues
3-1-02

By Michael Gormley, Associated Press Writer

An anti-tax group said New York City's proposed cigarette tax could gut revenues the state is counting on from its own increase in the cigarette tax that begins in April.

E.J. McMahon of the conservative think tank called the Manhattan Institute Center for Civic Innovation released his analysis on the cigarette taxes Friday. He said the tax increases would create widespread loss of sales to the Internet, Indian-run businesses, nearby states and from smokers quitting or cutting back. All of that is called leakage in economic terms and results in a corresponding loss in revenues which the state and city are counting on. "The state could lose almost as much money as the city gains from such a proposal, thus endangering a major portion of the financing for Gov. George Pataki's newly enacted health care initiative," said McMahon, a senior fellow for tax and budget studies.

New York City Mayor Michael Bloomberg wants to raise the city tax on cigarettes from 8 cents per pack to $1.50. That would be on top of the state cigarette tax increase of 39 cents a pack approved in January, which brought the state's tax to $1.50 per pack.

McMahon said the city tax could wipe out as much as 85 percent of the revenue Pataki is counting on to fund raises for health care workers and for health programs.

"At this point we are still reviewing the mayor's proposed budget and have not made any determination regarding this proposal," said Kevin Quinn, spokesman for Gov. George Pataki's budget office.

Legislative leaders have said they also have no opinion yet on Bloomberg's proposal.

If the city tax is approved to help close its budget deficit caused by the Sept. 11 terrorist attacks, smokes bought in the boroughs could cost almost $7 per pack - a price McMahon says will send smokers shopping elsewhere.

"The mayor has said that for the city he hopes that the revenue on the cigarette tax goes to zero because that would mean no one is smoking," said Bloomberg spokesman Jordan Barowitz.

"As for the state, any decreases in revenue the state might see would be offset by significantly lower health care costs the state would be responsible for because of the costs of smoking-related illnesses."

McMahon isn't convinced.

"It's not unreasonable to speculate that if New York's combined city and state cigarette tax is allowed to reach a whopping $30 per carton of 10 packs, the existing revenue leakage would turn into a veritable hemorrhage," McMahon said. "Smokers could save at least $18 a carton by buying their cigarettes in any neighboring state or even more by using a tax-free Internet site."