Monday, November 21, 2011

Markets in Everything: Roll-Your-Own Cigarettes

ABC News: "NYC Sues Roll-Your-Own Cigarette Shops Over Taxes":
"[Island Smokes] is one of a growing number around the country that have come under fire over their use of high-speed cigarette rolling machines that function as miniature factories, and can package loose tobacco and rolling papers into neatly formed cigarettes, sometimes in just a few minutes.

The secret to Island's low prices is simple: Even though patrons leave carrying cartons that look very much like the Marlboros or Newports, the store charges taxes at the rate set for loose tobacco, which is just a fraction of what is charged for a commercially made pack.

Customers select a blend of tobacco leaves, intended to mirror the flavor of their regular brand. Then they feed the tobacco and some paper tubes into the machines, and return to the counter with the finished product to ring up the purchase."
But the NYC government is not happy:
New York City's legal department filed a lawsuit against Island Smokes on Nov. 14, arguing that the company's Manhattan store and another on Staten Island are engaging in blatant tax evasion.


At 11/21/2011 9:32 AM, Blogger morganovich said...

this is absurd. how is this any different from the "grind your own coffee" machines in grocery stores?

this is a tax code issue, not an issue of evasion.

evasion is not paying a tax you owe. last i checked, tax avoidance is legal in the US.

if they are really so irked, change the tax code.

At 11/21/2011 9:49 AM, Blogger geoih said...

Quote from morganovich: "if they are really so irked, change the tax code."

Oh they will, but probably not until after they take all of this guy's property and drive him out of business.

At 11/21/2011 10:51 AM, Blogger Cabodog said...

Just changing the tax code would drive him out of business.

At 11/21/2011 10:58 AM, Blogger morganovich said...

well, the government will NOT tolerate cleverness. it cannot be allowed to go unpunished!

this is the exact mechanism that makes hauser's law work.

if you hike a tax rate up high enough, people start altering behavior to get around it.

in many countries (like canada) this is actually illegal, but in the US tax avoidance is perfectly legal so long as you follow the letter of the code. (well, unless you are trying to renounce your citizenship. then, the feds reserve the right to deny you the ability to do so if they feel it is for "tax avoidance". such instances are rare, but they keep it as a trump card in case you think up some clever way to leave without paying your mark to market taxes first).

At 11/21/2011 11:00 AM, Blogger Benjamin Cole said...

Yes, this is good for a laugh--and yet, consumption taxes are usually better for an economy than income taxes. Taxes on luxury consumption--as advocated by Milton Friedman--make the most sense.

Taxes on booze, drugs, cigarettes, vice etc also make sense. Maybe taxes on religion too.

What does not make sense is to tax some guy for working at $9 an hour. Or taxing a millionaire who invests.

At 11/21/2011 11:53 AM, Blogger Viqueen said...

So one thing I need cleared up are these people going into this smoke shop and using a machine to roll cigarettes or are they buying thier own machines and doing it at home. If so is there a difference in doing it in the store or in your own home?

At 11/21/2011 12:10 PM, Blogger morganovich said...

astoundingly, i find myself in agreement with benji.

consumption taxes work better than income taxes for a great many reasons not least of which are ease of implementation and the fact that, unlike our income tax code, they actually promote savings and investment as opposed to consumption.

i also like lotteries, because taxing stupidity and poor math skills is never a bad idea.

At 11/21/2011 12:27 PM, Blogger Marko said...

I want to suggest a federal constitutional amendment that says that neither the feds nor the states can create exceptions in tax codes - they must affect all the same or none. I will call it the Tax Fairness Amendment. So, you can have a sales tax, but has the be the same for all items sold - houses, cigs, candy, hams, movies, whatever. Same with income - all the same or you can't do it. Man that would put alot of lobiests and tax folks out of work, but think what it would do for the economy, and incidentally for tax collection!

At 11/21/2011 1:53 PM, Blogger arbitrage789 said...

This whole business of raising taxes on cigarettes in NY, and the reaction to it, provides a microcosm of how behavior changes in response to tax increases. There’s also a significant black market for cigarettes in NYC, as I’ve read.

Meanwhile, the idiots on the Joint committee for taxation ( ) think that the way we should predict revenues from tax law changes is to assume that no consumer, worker, investor, or business owner will change his/her behavior.

A committee of morons, I would say.

At 11/21/2011 2:10 PM, Blogger Benjamin Cole said...

I see my ongoing education of Morgan is taking effect.

At 11/22/2011 7:11 AM, Blogger geoih said...

Uqote from Benjamin: "Taxes on booze, drugs, cigarettes, vice etc also make sense."



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