Last week, David Paterson's latest tax hike went into effect in New York, a ludicrous $1.50 per pack increase in the statewide cigarette tax. As of July 1, the state now sports the nation's highest cigarette tax at $4.35 per pack. The rate in New York City is a jaw-dropping $5.85 per pack.

Among neighboring states, only Rhode Island ($3.46 per pack) is even close to New York's rate. The effect on the Empire State's small business climate was obvious from the get-go: Smokers will cross state lines to stock up on lower-priced cigarettes, along with the snacks, gasoline, and other goods they purchase along the way.

Pennsylvania retailers are already seeing tangible benefits as consumers are jumping the border to avoid New York's oppressive tax rate. From the Scranton Times-Tribune:

"We have a lot of New Yorkers that come here, and I expect more," said Rene Kizer, store manager of Smokin' Joe's Tobacco Shop in Beach Lake, Wayne County, a 6-mile hop from the New York border.

Ms. Kizer sells a pack of premium cigarettes for just under $6 and a carton of cigarettes for $59, compared to $100 just over the Delaware River in New York.

NBC3 in central New York:

"It makes a difference because it adds up," Kevin Purse who drove from New York to Pennsylvania to buy cigarettes said. "I'm not a pack a day smoker but it does add up."

Tina Jahelka says she saves $50 to $60 a carton crossing the border. "Never again in New York, never again in New York," she says about buying cigarettes.

High cigarette taxes in New Jersey have had the same effect on Pennsylvania retailers, who can sell cartons of cigarettes for around $11 cheaper than in the Garden State.

I don't feel bad for most New York smokers who at least have the option to purchase smokes elsewhere. I do regret the impact Paterson's tax increase has on local businesses, who simply won't be able to keep their doors open much longer. Cigarettes make up nearly one-third of convenience store sales nationwide. New York retailers are essentially being forced by their government to give up that portion of their incomes.

And all New Yorkers, smokers or not, will feel the pinch in the near future. The Empire State simply will not meet revenue expectations from this tax increase. The $440 million estimate, earmarked for a variety of health programs, is a joke. When those ongoing expenditures start running deficits as a result of declining cigarette tax revenues, other taxes will be raised to close the gap. Funding permanent spending programs with temporary and declining revenue sources is fiscal incompetence at its worst.

But while New Yorkers will be feeling the adverse impact of Gov. Paterson's insistence on job-killing tax increases for years, Pennsylvania retailers will be laughing all the way to the bank.

Posted by Joshua Culling on Wednesday, July 7, 2010 9:54 AM EDT

To follow Joshua Culling's RSS feed click here. To follow them on Twitter, their handle is @joshuaculling