Op-Ed by Liz Mair
With potentially just days to go until lawmakers lock New York’s 2027 budget, state leaders might manage to pass a rare measure that doesn’t double down on the state’s recent trend of hostility to taxpayers.
If they do, pity those of us in neighboring states who have long benefited from attracting would-be New Yorkers who simply cannot stomach high tax rates, more of whom would undoubtedly flock to our terrain were even higher rates pushed through.
But never underestimate Albany’s ability to deliver up a last-minute bad result. While income tax hikes may be off the table, members of the General Assembly are still weighing one tax hike that history suggests will do little or indeed nothing to improve the state’s fiscal picture, and indeed might worsen it.
This is not the much-remarked upon “pied-a-terre” tax targeting city pads with a value of over $5 million (there seems to be agreement on including this one, despite its flaws).
Rather, the legislature still has not ruled out a 75 percent tax on nicotine pouches like ZYN,Velo, Rogue and On!.
Governor Hochul thinks the tax is needed to dissuade “youth” from using these products even though the latest National Youth Tobacco Survey shows that only about 1.6 percent of minors used products like these in the last 30 days—a drop of close to 20 percent year over year.
But everyone else, and in particular, the state’s budget director, is no doubt counting on the $18 million the tax is supposed to bring in, to ensure the budget balances. The tax is a dubious way of accomplishing that goal. Among other things, New York has a huge nicotine product smuggling problem, and no state collects the requisite taxes on contraband trucked in from lower tax jurisdictions.
Back in 2020, the Mackinac Center for Public Policy found that more than 53 percent of cigarettes sold in New York had been smuggled in. Furthermore, New York had a bigger cigarette smuggling problem from 2011 right up until that year than every other state in the nation.
New York’s high tax rates have long made it a magnet for tobacco products smuggled in from lower-tax states like New Hampshire and Maine, especially. But it’s also worth remembering that anyone living in reach of Connecticut—so, depending on how you define “in reach,” residents of at least five New York counties and potentially seven—can automatically knock off at least $1 per pack for simply driving across the state line to purchase smokes.
This is bad enough. However, of particular note, Connecticut does not have a nicotine pouch tax; New York introducing one at the 75 percent rate would mean an eye-popping differential that would make Westchester and Bronx residents, at a minimum, stocking up in cities like my own current abode of Stamford simply too good an opportunity to skip.
That is, unless the Connecticut legislature similarly intervenes, which it could, but thus far has declined to do. For now, New York lawmakers would do well to remember that Connecticut has an Exxon, fully equipped with a Tiger Mart, a literal 50 feet away from the state border in Byram; it is, in fact, walkable from Port Chester—even for a great-grandma using two canes.
For those who don’t want to walk, or hop in the car for five or ten minutes, Downtown Stamford is a quick 50-minute train ride from Grand Central. People who want to work in New York but dodge their top rate of income tax—10.9 percent, plus New York City taxes for those unfortunates—have long been moving just a few miles East to knock off close to four percent from the top tax rate. The more working-class consumers of nicotine pouches may not actually uproot themselves to hedge against punitive rates, but they’re plenty acclimated to taking advantage of lower taxes where they can—and are especially likely to do so as New York faces an ongoing affordability crisis. This explains why Black and Latino convenience store owners in counties like Westchester have been fretting the budget.
An alternative proposal is being mooted as part of all the haggling: Institute a nicotine pouch tax at a per can, as opposed to ad valorem, rate. While this would still involve some price differential, the gap between New York prices and Connecticut prices would be slimmer– which helps explain why Black and Brown Westchester retailers prefer it. It will still be anathema to anti-taxers (and rightly so), but it could also prevent New York from passing a budget predicated upon tax revenue that will never materialize, potentially creating an ongoing deficit snowball that gets worse and worse as the overall economy looks like it could easily sour.
Will New York dodge this particular bullet this year? We’ll know in a few days– probably. Until then, the proposal currently on the table looks like bad math in the service of supposed “virtue.” Lawmakers should be looking at other ways of balancing the budget that do not double down on the problem of big cost-of-living discrepancies between the Empire and the Constitution States.
Liz Mair is a longtime tobacco harm reduction advocate and policy expert who quit smoking by vaping (and then quit that). She lives in Stamford, Connecticut.