By: David Schwartz, Esq. and Ian Poulos

Last week Blooberg.com observed that a “decline in tobacco use among youth has slowed in recent years.” Interestingly enough, the purpose of increasing cigarette and other tobacco product (OTP) taxes has been a part of Mayor Bloomberg’s multi-year plan to discourage youth smoking while generating revenue for New York State. To clarify, biased taxes against tobacco have been instituted as a part of a joint effort involving the New York State Legislature and the Bloomberg Administration. Mayor Bloomberg, with the help of the legislature, added a $1.50 per pack cigarette tax in New York City – from the original $.08 – to the state-wide $4.35 tax. It appears that Mr. David Schwartz, former King’s County Assistant District Attorney and founding partner of Gotham Government Relations & Communications, correctly stated, “During this past decade New York officials have repeatedly turned to excessive cigarette excise taxation looking for more revenue and for the expectation of discouraging teenage and adult smoking. Ironically, the net effects of this misguided policy have accomplished neither, while fostering an environment of lawlessness that grows with each new tranche of taxation and the corresponding governmental indifference directed towards effective enforcement.”

From the beginning of the Legislature’s crusade, experts, special interest groups, and media outlets have warned of the negative repercussions which emerge out of raising OTP and cigarette taxes to such high levels. Now, more than ever, it is time to hear the ignored voices of the small businesses which are being, or have been, crushed by a disregarding governmental hand.

High Tobacco Taxes Fuel Underground Rings

New York currently touts the highest tobacco tax in the United States. The higher the tax, the greater the demand for contraband cigarettes; it’s as simple as that. Who are the culprits? In New York State, cheap contraband cigarettes are distributed by Native American Reservations because their sellers buy tobacco products at a lower rate than other New York vendors. Terrorist organizations are the other major player in the cigarette smuggling business. Mr. Schwartz said the tax would be an issue and smuggling would increase, but you don’t have to take his word for it. Let’s examine some third-party, independently researched information.

The Mackinac Center for Public Policy is a “non-partisan research and educational institute” that conducted studies focusing on the tobacco smuggling industry. “Cigarette Taxes and Smuggling 2010” explains the changes in the tobacco smuggling world from 2006 and 2009. The study focuses on two aspects of smuggling: commercial and casual. Commercial smuggling involves illegal tobacco transportation which occurs in larger volume and across large distances. Casual smuggling is cross-border shopping conducted by individuals. There is a third and final smuggling statistic included in the totals which takes into account trafficking from Canada or Mexico. In 2006, 35.81% of total state cigarette consumption was smuggled into New York State through commercial, casual, and foreign entities. In 2009, this number leaped to a staggering 47.53%. Out of the 47 states studied by the center, New York earned itself a position as the 2nd largest receiver of smuggled cigarettes. The study also notes that the data for subsequent years can be expected to follow this same trend.

Jobs Lost, Freedom Revoked, America’s Safety Compromised

From increasing illegal activity to hurting small businesses, higher tobacco taxes affect many different aspects of society. The people affected the most are small business owners and luxury cigar shops – particularly those in New York City. Mayor Bloomberg prides himself on protecting the youth, but the issue is that many of the vendors affected by the OTP tax sell products whose price significantly outreaches the meager teenage budget. How many youth can afford to spend hundreds of dollars for high-end cigars sold in NYC specialty shops? These shops are luxury and hobby oriented, and they are not meant for children. With this in mind, it becomes clear that the taxes imposed by the Legislature are discriminatory. Luxury shops are closing their doors because they cannot compete, for their clientele is being permanently diverted to contraband sellers and nearby low tax states. Jobs are being lost with the closing of small businesses and freedoms are being revoked – the freedom of being something unique and representative of tradition. Some of the most wonderful brick and mortar shops, privately owned and kept in the family for years, are being decimated by these taxes. This is a time of economic crisis, and the people who facilitate these shops – owners and workers alike – are facing a threat. Passing legislation and instituting a tax which threatens the livelihood of so many people is outrageous and, most of all, unfair.

However, job loss is not the only negative ramification the public faces when tobacco taxes are on the rise. As mentioned above, increases in illegal tobacco activity are directly related to a rise in cigarette and OTP taxes, and this leads to more violence in the community. For example, the Mackinac Center notes that “In November 2008, an elderly couple from New York was killed just inside the Canadian border after a suspected cigarette smuggler plowed into their car while fleeing police.” Furthermore, smuggling rings have also been known to be associated with terrorist organizations. A report prepared by The Republican Staff of the U.S. House Committee on Homeland Security in 2007 “directly linked those involved in illicit tobacco trade to infamous terrorist organizations such as Hezbollah, Hamas, and al Qaeda.” The Legislature seems to have overlooked the impact high tobacco taxes have on the community and America at large.

What can be done?

Part of the New York State Legislature’s motivation for imposing such high taxes on tobacco products was to increase revenue. If this is, in fact, the motivation Native American Reservation smuggling should be taxed on the sale of illegal cigarettes. New York is allowed to collect tax on all sales which involve non-reservation members, but the current “hands off” policy is costing New Yorkers millions of dollars in revue losses by allowing these taxes to go unpaid. New York Taxes Up In Smoke, a group which is fighting for the taxation of Indian Reservation tobacco sales, explains that a study conducted by the ICIJ reports a $850 million loss in cigarette tax revenue. This money could have slashed the 2008 fiscal deficit by half, and even if it was not utilized for the deficit, the money could have been put to better use in hospitals, law enforcement, and library or school budgets. Instead, it was used to fund illegal activity. Aside from taxing contraband tobacco, a sincere effort should be made to lower the New York cigarette and OTP tax rates. According to Mr. Schwartz, “The real solution to these mishaps is simply to lower the tax to levels that are within the ballpark of our surrounding states and finally empower law enforcement to take the gloves off. At this minute a crisis is underway that may become irreversible shortly.”

The time is now. Small, century-old businesses contribute to the atmosphere which makes New York the home of opportunity and diversity. The current tobacco taxes are discriminatory, unfair, and unreasonable. Gotham Government Relations & Communications is a firm dedicated to giving small businesses a voice. Mr. Brad Gerstman and Mr. David Schwartz, founding partners of the firm, are fighting tirelessly in Albany for a bill meant to cap cigar taxes at $1.00. If successful, this will bring small business one step forward, but the battle is far from over.

For more info, visit:  nyupinsmoke.org

David Schwartz and Queens City Councilman Eric Ulrich debate Manhattan City Councilwoman Gale Brewer and the city’s Health Commissioner Doctor Thomas Farley over a proposed smoking ban in New York City parks.

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David Schwartz, a lobbyist for the New York Tobacconists’ Association, debates Michael Seilback from the American Lung Association on whether the city should be allowed to ban smoking in public beaches and parks on Thursday’s edition of “Inside City Hall.”

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Tax-choked smokers are fleeing over the border and onto Indian reservations in search of discount cigarettes and sending Gov. Paterson’s anticipated tax windfall, well, up in smoke.

Cigarette sales statewide have tumbled by nearly a third since New York’s highest-in-the-nation cig tax of $4.35 took effect on July 1, according to state tax data and sales reports released yesterday by retailers.

Read the rest of the story in The New York Post

New York Tobacconists Association gathered to speak out against an increased state OTP tax that would put them out of business and would lose money for the state. Shot at De La Concha in Manhattan by the European Cigar Journal.

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For more information and to get involved, go to NYUpInSmoke.Org