And So It Goes: The Cycle of Tobacco Tax Policy
Last September, I wrote about how New York City residents face the highest combined state and local excise taxes on cigarettes in the country, pushing the average price of a pack to roughly $14.55. This high tax burden is fueling a vigorous black market, as a recent Rutgers University study of littered cigarette packages confirmed: only 16.6 percent of littered packages had New York City tax stamps.
If lawmakers in New York and other states want to see where this will lead, they can look down under to Australia, which has taken New York’s prohibitive cigarette taxes several steps further. In 2016, the Australian government announced it would raise tobacco excise taxes by 12.5 percent each year through 2020, explicitly aiming to discourage cigarette smoking by driving the price of a pack up to A$40. The government didn’t stop there. By December 2025, according to tobaccoinaustralia.org, continued tax hikes pushed the average price of “mainstream cigarette packs” to A$55 or A$2.32 per cigarette.
The result, according to a February 15 report in the New York Times: “[T]he high prices have also given rise to a thriving black market now estimated to be a multibillion-dollar industry that accounts for as much as half of all tobacco sales in the country.” The Times reports that organized crime groups competing for a share of this lucrative market have triggered waves of violence, including firebombings, extortion, shootings, and homicides.
Last November, the Australian Senate declared the country was in the midst of an “illegal tobacco crisis,” and referred an inquiry to its parliament’s Legal and Constitutional Affairs References Committee. It requires the Committee to report by March 27, 2026, on, among other things:
- forecasts, modelling and plausible future scenarios concerning the potential evolution of the illicit tobacco threat, including the prospect for increased violence and the effect of illicit tobacco on the wider TSOC [Transnational Serious Organized Crime] threat;
- options for reform, including potential amendments to existing policies and to taxation, customs and/or criminal laws; and
- any other related matters.
Australia’s prohibitive taxes on cigarettes were inspired by the World Health Organization, which claims, “Tobacco taxes are the most cost-effective way to reduce tobacco use, especially among youth and low-income groups.” Clearly, this guidance reflects little appreciation for the well-documented economics of prohibition. This is yet another example of WHO mission creep, which, like the CDC, has strayed far from its original focus on data collection, surveillance, and logistic support to local public health authorities. I have written about the shortcomings of both agencies here and here.
In accordance with the WHO’s guidance, The Times reports Australia’s confiscatory cigarette taxes have done more than fuel smuggling—they’ve bred a full-blown criminal ecosystem. Organized syndicates now battle for market share through firebombings of tobacco shops, armed extortion of retailers, drive-by shootings, and gangland killings. What policymakers framed as a public-health measure has, in practice, created a lucrative underground market policed not by regulators but by violent cartels defending territory and profit. Behind the violence sits a vast and well-organized supply network.
Much of the contraband feeding this underground market originates overseas, smuggled in from lower-tax jurisdictions across Asia and the Middle East, often concealed in shipping containers or mislabeled cargo. Authorities also report a growing domestic component: illicit “chop-chop” tobacco, unlicensed local manufacturing, and counterfeit versions of major brands produced for black-market distribution. Together, these supply channels have built a resilient pipeline that quickly takes advantage of Australia’s tax differentials—ensuring that as legal prices rise, illegal suppliers step in to satisfy demand.
The Times reporter details growing concern among Australian officials about black markets, gang violence, and lost revenue—yet the policy approach so far seems to favor increasing enforcement rather than revisiting the tax system behind the illegal trade.
Just as Australian policymakers seem slow to learn from their mistakes, so does New York Governor Kathy Hochul. In her latest budget request, Governor Hochul asks state lawmakers to approve a 75 percent tax on nicotine pouches. Pouches deliver nicotine without tobacco leaf combustion or e‑cigarette aerosol. They are tobacco harm reduction tools that help smokers quit and provide a safer way for adults who choose to use nicotine.
In written testimony on the proposed tax that I submitted to the New York State Joint Legislative Budget Committee on Health/Medicaid, I argued that a proposed 75 percent excise tax on nicotine pouches risks undermining the very public health goals lawmakers aim to promote. By significantly increasing pouch prices compared to cigarettes, the tax would diminish the financial incentive for smokers to switch to a much safer alternative—price differences are important, and reducing them predictably hinders harm-reducing substitution. The tax would also encourage the growth of illegal and unregulated markets, as high taxes have historically driven consumers toward illicit channels with unknown quality and safety. Additionally, it would unfairly penalize adult smokers who have chosen a lower-risk option, effectively taxing harm reduction instead of supporting it.
In “And So It Goes,” Billy Joel reflects on the quiet resignation that comes from watching an emotionally painful pattern repeat itself despite knowing better. The song’s narrator recognizes the risks of vulnerability and the likelihood of heartbreak, yet the cycle unfolds anyway—“and so it goes.” That sense of weary inevitability parallels the policy dynamic we see in Australia, New York, and other jurisdictions that follow the WHO’s advice.
Lawmakers confront the same predictable unintended consequences—black markets, crime, and consumers shifting to illicit products or other alternatives—yet continue to reenact the same tax-and-prohibition playbook, as if experience had taught them nothing.