Tax Harmonization: Why Neighboring States With Different Cigarette Taxes Create a Cross-Border Mess
New York's cigarette tax is among the highest in the US. Pennsylvania's is among the lowest. The result: a cross-border trade that undermines both states' policies. Tax harmonization is the obvious solution—and politically impossible.
A pack of cigarettes costs $13 in New York and $8 in Pennsylvania—a $5 difference driven almost entirely by tax differentials. The result: an estimated 50-60% of cigarettes consumed in New York are purchased out of state or on the illicit market. **Tax differentials between neighboring jurisdictions create cross-border trade that undermines both states' policies. The high-tax state loses revenue and public health impact. The low-tax state becomes a supplier for the high-tax state's smokers. Tax harmonization would solve the problem—but requires states to coordinate their tax policies, which they have no incentive to do.**
