The good economic news in Gov. Pataki’s proposed budget is a fresh round of $2.5 billion in annual state tax cuts that would provide a strong shot in the arm to business investment throughout New York (assuming the cuts are phased in on schedule after Pataki leaves office).

The bad news is that the governor also wants to raise upwards of $300 million a year from an immediate $1 per-pack increase in the state’s $1.50 tax on cigarettes. Moreover, he is proposing yet another delay in the collection of sales and excise taxes on Indian reservations already the single largest source of tax-free cigarette sales in New York.

No one denies that a higher tax will mean a further decrease in taxable cigarette sales, exacerbating a “serious” existing tax evasion problem. Nor does anyone deny it will also mean a further loss of business for tax-paying (i.e., non-reservation) convenience stores.

Four years ago, when New York State and New York City both raised their taxes to $1.50 per pack, the result was a sharp drop in taxable cigarette sales and a surge in illegal “butt-legging.” The state’s cigarette tax now raises about 14 percent less than it did before the 2002 state and city increases.

Aside from Indian smoke-shops and out-of-state tobacco dealers, the biggest beneficiaries of New York’s last cigarette tax increase were criminals, ranging from small-time smugglers to full-blown terrorist groups.

Pataki’s proposed tax increase would raise the average (legal) retail price for a carton of Marlboros in New York to at least $55 per carton, creating an even more enticing opportunity for shady operators with easy (legal) access to much cheaper cigarettes sold in other jurisdictions.

So why boost the already big profit margin for illegal “butt-legging”? The only explanation advanced by the Pataki administration is that a higher tax will discourage smoking. But a closer look at the proposed state budget reveals the state has its own form of nicotine addiction.

Without the projected increase, the state’s Health Care Reform Act (HCRA) budget will be in the red by fiscal 2008. In other words, this really boils down to a short-term gap closer for a politically sensitive spending program.

Enforcement of a higher tax will only be made more difficult by the governor ‘s simultaneous proposal to delay, for another full year, the scheduled March 1 effective date of a new law enforcing state sales and excise taxes on Indian reservations. The official excuse: State bureaucrats need more time to develop a workable “export decal” program for Indian retailers. Perhaps. But this claim meets with understandable skepticism from anyone who has watched Pataki’s continuing efforts to sidestep the Indian taxation issue over the past decade.

You don’t have to be a smoker or a store owner competing with tax-free Indian venues to believe that yet another cigarette tax increase in New York would be a bad idea. Credible estimates indicate the state can raise at least as much money by taxing sales on Indian reservations. It’s high time this loophole was closed once and for all.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

You may also like

Bear market spells big trouble for NY state and city budgets

Wall Street generates an outsized share of New York’s tax revenue, so the recent drop in stock prices should worry both Gov. Kathy Hochul and Mayor Eric Adams. Read More

Kathy Hochul will have to prove she can hold the line on state spending

Hochul’s specific priorities were lowest-common-denominator stuff: “combating” the spread of COVID-19 linked to the Delta variant, pushing billions in stalled federal rent relief out the door to tenants (and ultimately their landlords) and “beginning to change the culture in Albany.” Read More

Calling Tax Cut “Theft,” Cuomo Continues to Push For Federal Bucks With Phony Math

The results of this week’s Georgia Senate runoffs, assuring Democrats will soon control both houses of Congress, as well as the White House, had to come as a huge relief to Gov. Andrew Cuomo. Read More

Students Need Reforms, Not HEROES

Families and businesses are watching their bottom lines and stretching each dollar. But House Democrats are pushing a plan to prevent America’s schools from doing the same thing. Read More

Washington shouldn’t fund NY’s “normal” budgets

With the coronavirus lockdown continuing to erode tax revenues, Gov. Andrew Cuomo has turned up the volume on his demands for a federal bailout of the New York state budget. In a weekend briefing, the governor repeated his estimate that the Empire State will need help closing a deficit of $10 billion to $15 billion. “I don’t have any funding to do what I normally do,” he said. Read More

Cuomo’s Plate Spinning

Governor Cuomo’s license plate design contest was a PR ploy masking a nickel-and-dime revenue raiser. Read More

How Cuomo is cooking New York’s books

When lawmakers in Albany passed the state budget last spring, Gov. Andrew Cuomo declared it “both timely and fiscally responsible.” Timely was true enough. But fiscally responsible? Not so much. Read More

Cuomo’s SALT Flop

By midnight Monday, more than 9 million New Yorkers will have filed their income tax returns for 2018. And most will then have cause to wonder what the Great New York SALT Panic of 2018 was all about. Read More


Sign up to receive updates about Empire Center research, news and events in your email.


Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries:

Press Inquiries:


The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!