Equal Cigarette-Tax Collection in New York State Would Net 2,000 More Jobs, Boost Taxable Wages By $60 Million, says FACT Alliance
In era of 'jobless' economic recovery, Economist's study links tax fairness to job growth
ALBANY, N.Y., Jan. 27 /PRNewswire/ -- New York State would see a net gain of 2,000 jobs -- and a resulting $60 million boost in taxable personal wages -- if it collected taxes on all cigarettes sold or consumed in the state, a new study shows.
"This is the first picture we've seen of how many people have either lost jobs or could be working right now if the state put a stop to rampant cigarette-tax avoidance at Native American businesses," said the study's author and independent economist Brian P. O'Connor, Ph.D.
In a study released today, Dr. O'Connor estimates that in 2002, the retail cigarette industry in New York state supported the equivalent of 8,300 full-time jobs. Applying the state's tobacco excise tax equally to all cigarettes purchased by New Yorkers or sold by local retailers would shift 24 million cartons of local consumption from tax-avoiding sources back to tax-paying sources, the study found.
This shift would create a net increase of 1,900 to 2,000 jobs -- resulting in higher taxable labor earnings of $55 million to $60 million.
"We already knew that cigarette-tax avoidance is robbing the state of millions and making it easier for kids to get cigarettes," said Dan Finkle, a FACT Alliance member and president of Finkle Distributors, a full service distributor in Johnstown, N.Y. "Now we know that a couple of thousand jobs have disappeared, too. With so much of upstate New York still struggling economically -- and the state broke -- how can we ignore 2,000 jobs and $436 million a year in tax revenues?"
A recent newspaper investigation based on state records showed the state, which faces a $5.1 billion deficit this year, lost $436 million from tax-free cigarette sales at Native American businesses in 2002 alone. In addition, over the last decade job growth in the state has been only half the national rate.
The study was commissioned by the FACT Alliance for the Fair Application of Cigarette Taxes, a coalition of private businesses, trade associations, and concerned groups whose goal is to publicize the negative effects of rampant cigarette-tax avoidance.
Last January FACT released a study showing that the state lost nearly $1.5 billion in tax revenues over two years from untaxed cigarette sales via Native American stores, the Internet, 800-number phone networks, bootlegged sales and cross-border sales.
In May 2003 the state Legislature passed a law requiring New York to begin collecting taxes on goods sold by Native American businesses to non-Native Americans. But the state Department of Taxation and Finance delayed implementation of the law, from last December until at least March 1. In his recent Executive Budget proposal, Gov. George Pataki proposed putting off collecting the taxes for an entire year and instead negotiating so-called "price parity" deals directly with Native American tribes.
Finkle said the call for "cooperation" rather than "confrontation" was an approach the FACT Alliance had hoped would work. But many Native American tribal leaders have declared their refusal to negotiate any "price parity" deals with the state, Finkle noted. And some Native American representatives have said that if the state starts enforcing the law, they cannot rule out the kind of violence that occurred in 1997 -- the last time the state tried to collect taxes.
"The very people the Governor wants to negotiate with are the ones threatening confrontation," Finkle said. "So with all due respect, how do you cooperate with those whose main bargaining tool is confrontation?"
James Calvin, president of the New York Association of Convenience Stores and a FACT member, said "price parity" deals proposed last year were supposed to bring prices on reservation lands up to par with the price charged when taxes are included. But the agreements contained such massive loopholes, including an exemption for stores with sales under $2 million, that the deals were meaningless and ineffective at leveling the playing field.
"That's not price parity, that's price charity," Calvin said. "Where was the concern for non-Indian retailers who fall under that same sales threshold -- about half the legal, tax-paying convenience stores in New York State -- who have suffered the ill effects of rampant, state-sanctioned tax evasion for years?"
"It's been 10 years since the U.S. Supreme Court said collecting these taxes was perfectly legal," Finkle added. "Just do it."
Russell Sciandra, director of the Center for a Tobacco Free New York, joined FACT at an Albany news conference to discuss the health consequences of tax avoidance.
Sciandra said based on published reports, he estimates collecting taxes on Native American sales would reduce total cigarette consumption by 5 percent and save 1,250 lives a year in New York. The state would collect $410 million in additional cigarette taxes per year and save $215 million in annual Medicaid costs, he said.
"Not collecting this tax blows a half-billion-dollar hole in the budget and costs 1,250 lives," Sciandra added. "We can't afford to wait any longer."
Today's study examined jobs and earnings associated with cigarette sales in New York State from all sources and methods -- including tobacco shops, grocery stores, gas stations and convenience stores, Native American businesses, the Internet, 800-number phone networks, bootlegged sales and cross-border sales.
Because there are no government statistics that can completely describe the industry from a sole source, Dr. O'Connor gathered demographic data across several industries and from many different official statistical agencies to develop a comprehensive industry profile.
He found that total statewide industry employment is approximately 8,300. Of this number, Native American businesses employed an estimated 1,300 workers and sold 28 million cartons of cigarettes in 2002.
The remaining tax-paying businesses employed approximately 7,000 workers and sold slightly more than 80 million cartons.
Based on workforce size, worker-to-sales ratios, worker salaries and changes in both cigarette demand and buying patterns as prices shift, Dr. O'Connor found that a uniform imposition of the state's tobacco excise tax on all cigarettes purchased by New Yorkers or sold by local retailers would:
* shift 24 million cartons of local consumption from tax-avoiding sources
to tax-paying sources;
* reduce Internet sales, including out-of-state sales;
* and reduce smoking in the state by 2.5 million to 3 million cartons.
These changes in market conditions would create a direct net increase of 1,300 to 1,400 jobs in the retail cigarette market, with higher labor earnings of $35 million to $40 million. Indirect effects -- from industries that supply or service cigarette retailers -- combined with direct impacts would bring total job expansion to between 1,900 and 2,000, with a total net gain of $55 million to $60 million in taxable wages.
"At a time when economists all over the country are lamenting a 'jobless' economic recovery, this study suggests equal tax collection would spur significant job growth in New York," Dr. O'Connor said.
Representatives from the American Cancer Society, the American Lung Association and the New York Public Interest Research Group also participated in the news conference.
Native American tribes are exempt under Federal law from charging state excise taxes on sales of tobacco to members of their own tribes, according to a 1994 U.S. Supreme Court decision (Department of Taxation and Finance of New York v. Milhelm Attea & Bros., Inc.). This tax exemption is justified and not in dispute. However, the same ruling declared that tribal sales of tobacco and motor fuel to non-Native Americans were subject to state taxes, and that New York State had devised a constitutionally sound method of collection. The State since 1997 has not exercised its authority to enforce the collection of such taxes.
Dr. O'Connor, who holds a doctorate in economics from the University of Maryland, is founder of New Jersey-based Ridgewood Economic Associates, Ltd. During a professional career spanning 40 years, he has served as IBM's director of U.S. economics and as a technical consultant for the Federal Trade Commission.
In addition, he is a senior technical consultant with the Austin-based consulting firm Texas Perspectives, Inc., and founder of MarketView Publishing, a distributor of regional economic information.
Founding members of the FACT Alliance include the New York Association of Convenience Stores, the Food Industry Alliance of New York State, Inc., the Gasoline and Repair Shop Association of New York, the New York State Association of Wholesale Marketers & Distributors, and the Independent Petroleum Marketers of New York. For more information about FACT (www.factalliance.org), call (518) 377-FACT (3228).