By Joe Palumbo
It has been said that those who do not learn from the past are condemned to relive it. In the early part of the last century we had a period known as the Roaring ’20s. During this entire decade and spilling into several years of the next it was illegal to buy or sell alcoholic beverages.
This was to stop those who on payday drank their paychecks on the way home, but Prohibition was absolutely unsuccessful, except in the area of strengthening organized crime. That’s why it was chucked following the election of President Franklin D. Roosevelt.
Trucks of alcohol would rumble across the Canadian border, while there were those who produced their own wine and beer at home just like Grandma made apple pie. Those days are long gone, but we have now embarked in similar territory via the prohibitive cost of cigarettes.
Although the use of cigarettes is not illegal, the exorbitant tax placed on them has created a very similar environment. Would you pay the current New York City price of $7.50 a pack when you can get the very same product for $2 or less?
Just as people who were going to drink would drink, people who are going to smoke will smoke. When the government went on this high tax binge in mid-2002, it was all smiles since tax revenues soared to nearly $17 million. But those smiles have disappeared.
Those same New York City and state tax revenues have plunged nearly $6 million dollars, and it’s not because many people have quit but because illegal or unstamped packs are being purchased. The state and city have succeeded in nothing, and tax revenues continue to drop. Expect an increase in organized and petty crimes.
The good laws governing smoking, such as those making it illegal in theaters and restaurants, are quite enforceable and are a godsend in themselves. The government’s stance on taxes, however, has forced legitimate vendors to endure a sharp loss of income as they find it harder to sell cigarettes at such a highly noncompetitive advantage.
The government is going to have to face the music. It should roll back those taxes and spend that same money tracking down terrorists instead of targeting those who are silly enough to take their coffee break standing outside having a smoke. No tax will deter that kind of smoker.
So how’s business for bootleg cigarettes? Thanks to the city and state it is highly profitable.
Joe Palumbo is the fund manager of The Palco Group Inc., an investment company, and can be reached at palcogroup@aol.com or 718-461-8317.
