Cigarette price hikes in NYC will increase illegal street sales

The New York City Council's Health Committee is scheduled to review a series of bills designed to curb smoking on April 27. Mayor Bill de Blasio announced several proposals this month, including a plan to raise the base price of a pack of cigarettes to $13, the highest in the nation.

Don Kenkel, professor of Policy Analysis and Management at Cornell University, researches the economics of disease prevention and health promotion. Though well-intended, Kenkel says that New York City's proposed initiatives to cut tobacco use probably will cause unintended consequences that will undermine the effort to improve public health.

Kenkel says:

"Economic research conducted over the past decade finds that cigarette tax hikes are not as effective in reducing smoking as previously thought. Instead of reducing smoking, the proposed New York City initiatives might mainly drive smokers to New Jersey or to illegal street vendors.

"The New York state cigarette tax of $4.35 per pack is the highest in the nation, and New York City already imposes a $1.50 tax on top of that. Together with the proposed increase in the minimum price, smokers will face the equivalent of a tax of $8.35 per pack. By purchasing two cartons – roughly a month's supply – of cigarettes in New Jersey, where the tax is $2.70 per pack, a smoker could save $113 per trip. Economic research finds that cross-border cigarette purchases strongly respond to these incentives.

"In addition to legal tax avoidance through cross-border purchases, the proposal will also sharply increase incentives for illegal street sales of cigarettes smuggled into New York City from lower-tax states. A study of packs discarded as litter in the South Bronx found that two-thirds had out-of-state tax stamps, mainly from Virginia where the tax is only $0.30.

"However, there is an additional unintended consequence that could improve public health: increasing the price of conventional cigarettes might also drive some smokers to switch to electronic cigarettes. Encouraging vaping is a promising harm-reduction strategy: the health risks of vaping are estimated to be at least 95 percent lower than the risks of smoking. Unfortunately, the proposal to require and limit licenses for the sale of electronic cigarettes will tend to block this route to improve public health."