High Taxes on Cigarettes – Impact and Navigating Unintended Consequences

Audience: Tobacco control advocates, policy makers, and tax and finance officials.

Key Points: New York City (NYC) has the highest cigarette prices in the nation due to city, state, and federal excise taxes. High cigarette taxes further the public health goal of decreasing smoking, while also increasing tax revenue. However, high taxes have contributed to a lucrative black market for smuggling cigarettes from low-tax states and Native American Indian reservations, which are normally exempt from U.S. tax laws. In 2010, retailers on the Poospatuck Indian reservation (population <400) sold more than 6.6 million cigarette cartons. Many of those cigarettes were ultimately sold in NYC less than 100 miles away. To close this loophole, a New York State law authorized taxing all cigarettes, except specific amounts based on probable cigarette demand of reservation residents, before they enter Indian reservations. In June 2011, New York’s courts upheld that law, leading to increases in taxed sales and revenue. This law built upon previous steps designed to curtail internet sales of untaxed cigarettes, and shipment through private and public carriers. The tobacco industry contends that high taxes are flawed policies because they fail to generate revenue and incentivize smuggling operations, among other shortcomings. However, trends in taxed cigarette sales and smoking prevalence rates, demonstrate the effectiveness of cigarette tax policies. 

Educational Experience: Participants will be able to summarize the impact of tobacco tax policies, including unintended consequences and emerging trends.

Benefits: These results and lessons can inform jurisdictions that have, or are considering, robust tobacco tax policies.