Cigarette Tax Plans May Go Up in Smoke

NEW YORK – If you're a smoker in New York City, there's a good chance you don't buy your cigarettes at delis or newsstands. On average, a pack of smokes is now $7.50.

The steep price tag is thanks to a new city-imposed tax that in its first month forced cigarette sales down 50 percent -- and tax revenues up 1,000 percent. It sounds like a healthy fiscal plan, but critics warn that politicians, not just in New York but nationwide, are heading down a dangerous path. Again.

"High taxes lead, in cases of excise taxes, to the creation of organized crime, just as Prohibition brought us the Mafia," said Grover Norquist of Americans for Tax Reform.

Prohibition was designed to reduce crime and solve our social ills, and it’s universally agreed upon that it backfired spectacularly. Americans just turned to illegal speakeasies, where they spent more money for stronger alcohol. Serious crimes increased.

"It's conceivable that we could be dealing with potentially a situation similar to the times of Prohibition," said Arthur Libertucci, assistant director of the ATF's Office of Alcohol and Tobacco.

Studies show that while higher taxes are forcing some people to stop smoking, others are getting their nicotine highs anywhere and any way they can. They're turning to the Internet and to Indian reservations to avoid paying government taxes. Organized crime has quickly realized that smoke signals money, and it's even drawn the attention of terrorists. In June, Mohamad Hammoud was convicted of running a cigarette-smuggling ring and sending the money to Hezbollah.

"A tractor-trailer load of cigarettes has a street value in the neighborhood of $1.5 million dollars," Libertucci said.

While the ATF continues to ask for more money to investigate illegal tobacco trafficking, it’s having trouble keeping pace with the bad guys. Compared to four years ago, the number of new investigations has gone from six cases to 97 so far this year.