Friday, November 26, 2010

Memo To Anchorage Assembly Chair Dick Traini: New York Cigarette Taxes Costing The State $20 Million Per Month In Lost Revenue, A 14 Percent Shortfall

Either Anchorage Assembly Chair Dick Traini and the seven other members of the assembly who recently passed a 75 cents per pack tax hike on cigarettes didn't research this, or they don't care and are willing to gamble that smokers will continue to dutifully plunk down their change to pay escalating prices on cigarettes. The New York Post is reporting that New York state's stratospheric cigarette taxes may be costing the state up to $20 million per month in lost tax revenue.

Sales of taxed cigarettes have plummeted 27 percent since July 2010, when state lawmakers raised the excise tax to $4.35 a pack on top of New York City's tax of $1.50, making the average price of Marlboros $11.60 in the Big Apple, with some shops charging as much as $14. About 30 million packs are being sold legally each month -- down from 41 million packs a month before July. The plunge far exceeds tobacco-control experts' predictions that sales would fall 8 to 10 percent, indicating that smokers are finding other means to get their nicotine fix. In fact, the New York Association of Convenience Store Owners estimates that as many as half of all cigarettes consumed in the state lack proper tax stamps.

On the other hand, New York state officials maintain the tax is worth it as an incentive for people to quit, and claim the higher tariff is still sufficient to make up for the bootleg losses. Cigarette taxes brought the state $139 million in October of this year compared with $108 million in October 2009. But the estimated $20 million loss represents a 14 percent shortfall.

Even with Anchorage's tax increase, as set forth in AO 2010-70, cigarette prices won't quite shatter than $10 per pack barrier yet. The expected price of a typical pack of cigarettes will rise to $9.21 after the tax takes effect on January 1st, 2011, based upon the following breakdown:

-- Base cost of pack: $4.00
-- Federal tax: $1.00
-- Alaska state tax: $2.00
-- Anchorage municipal tax: $2.21

This, of course, assumes that Anchorage Mayor Dan Sullivan takes no action and allows the tax to become law. Sullivan has given no indication that he will veto the measure. The fact that the Anchorage tax hike passed 8-3 indicates the Assembly can muster up a veto-proof majority, and could override a mayoral veto.

Most appalling is the fact that so-called "conservatives" made this happen. The three most liberal members of the Anchorage Assembly voted against it. Tax hikes are not supposed to be a conservative principle, particularly tax hikes designed to change behavior. The primary purpose of taxes is supposed to be to raise revenue.

And when taxes become sufficiently high to encourage evasion by the public, then you've reached a tipping point. New York has long since breached its tipping point. But although Alaska isn't as accessible as New York, cigarettes will cost less in the adjacent Matanuska-Susitna and Kenai Peninsula Boroughs, and we could see an upsurge in people purchasing their cigarettes there and bringing them back here. Not all will be for personal consumption.

Considering Anchorage's budget problems, it would be an impressive act of political courage by Mayor Dan Sullivan to veto the proposed Anchorage cigarette tax hike.

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