As we reported last week, NY Gov. David Paterson wants to raise taxes to fix an overspending problem he helped create. It appears the scenario is worse than we originally thought, as a punitive "emergency budget extender" package may be up for a vote as soon as Monday.
Rather than a "modest" $1 per pack increase in the cigarette tax, the governor now wants a $1.60 increase, giving New York by far the highest tax rate in the country. He also has included tax increases on other tobacco products such as cigars and moist snuff. All of this will only exacerbate New York's dangerous tobacco smuggling problem, likely dragging revenues down as consumers look across state lines or to the black market for tobacco products. Most importantly, it completely ignores the overspending problem that has led to a $9 billion hole in the state budget.
In a letter to the legislature, ATR President Grover Norquist wrote:
The budget extender package not only ignores the root of New York’s budget mess, it expands upon it.It allows state government to continue spending at unsustainable levels while funding that spending with unreliable revenue sources. Gov. Paterson and those in the legislature who choose to turn a blind eye to the reality of New York’s overspending problem will be forced to confront the same problem again in the near future should they successfully raise tobacco taxes yet again.
To read the entire letter, see below. For a PDF, click here.
June 19, 2010
Dear Legislator:
In his latest misguided attempt to deal with New York’s $9 billion overspending problem, Gov. David Paterson has proposed an “emergency budget extender” package consisting of massive tax increases on tobacco products. The purported budget emergency has been created by budget frivolity rather than a revenue shortfall – a problem that remains unaddressed in the governor’s plan. Most importantly, another round of increases in New York’s already-punitive tobacco taxes will certainly fall short of revenue estimates, as the state’s tobacco smuggling problem will only get worse. I urge you to vote against this futile package of tax increases and address the root of New York’s problem: government spending.
Illegal smuggling is the biggest problem associated with the proposed $1.60 per pack increase in the cigarette tax. Interstate and international smuggling has long been a problem in the Empire State; between 1990 and 2006, it saw the nation’s second-highest smuggling import rate at 20.9 percent of total cigarette consumption. A 2008 report from the U.S. House Homeland Security Committee estimated that cigarette traffickers see profits of up to $300,000 per week by bringing illegal cigarettes into New York. With a combined state and local tax rate in New York City of $5.85 under the Paterson plan, the incentive to smuggle will be even stronger, leading to more crime and a greater burden on law enforcement. Most notably, tax-paid sales will decline drastically, with revenue very likely to fall well short of the package’s $440 million revenue estimate.
We have seen the perils of overreliance on tobacco taxes at the state and local levels many times before. This February, Washington, D.C. announced that its 50 cent-per-pack cigarette tax hike resulted in a $7 million revenue loss for the city. In New Jersey, state government saw a $22 million decline in revenue after a 17.5 cent-per-pack tax increase in 2007. A similar fate is likely in New York.
The budget extender package not only ignores the root of New York’s budget mess, it expands upon it.It allows state government to continue spending at unsustainable levels while funding that spending with unreliable revenue sources. Gov. Paterson and those in the legislature who choose to turn a blind eye to the reality of New York’s overspending problem will be forced to confront the same problem again in the near future should they successfully raise tobacco taxes yet again.
For those that have signed the Taxpayer Protection Pledge, a vote in favor of tax increases on cigarettes and other tobacco products is a violation of that Pledge.ATR wishes to continue to be helpful in confronting New York’s budget situation. Please contact state affairs manager Joshua Culling at [email protected] with any questions.
Onward,
Grover Norquist
CC: Gov. David Paterson