Debunking Steve Thode’s $80 Million Cigarette Tax Talking Point

A couple days ago I wrote:

When I talked to Jeff Barber about the show yesterday, he told me that Dr. Thode was claiming all the state’s cigarette tax revenue would be going to the NIZ.

I’m not sure if I misheard Mr. Barber or if he misheard Dr. Thode, but I will take the responsibility for getting this wrong. Dr. Thode’s actual claim was that all of the cigarette tax revenue in the ”Lehigh Valley area” would be sequestered by the NIZ.

Here’s the quote from his appearance on Business Matters:

“You know what the excise tax is on one carton of cigarettes? $16. You know how many cartons of cigarettes are sold in the Lehigh Valley area in one year?  5 million cartons. Do the math. $80 million in excise taxes a year are paid by cigarette wholesalers just in the Lehigh Valley area. Now you put those in the NIZ and that $80 million…”

At that point Mike Fleck starts interrupting Dr. Thode and he doesn’t get to finish, but you can see where he’s going with this.

This argument is barely less absurd than the position I originally attributed to Dr. Thode.

There is only one cigarette wholesaler in the NIZ – City Center Wholesale, which is really just Dorward Wholesale. Here’s the key graf from Matt Assad’s article on this:

It’s unclear how much tax money the new City Center Wholesale will generate, or even how much of the cigarette tax it collects will be eligible to flow into the NIZ fund, but Dorward’s 2010 ledger shows how quickly the tax on cigarettes can pile up. Though his company is relatively small compared with other wholesalers, Dorward said it sold 450,000 cartons of cigarettes last year. That’s 4.5 million packs of cigarettes taxed at $1.60 per pack for an annual tax total of $7.2 million.

$7.2 million, not $80 million. One cigarette wholesaler is in the NIZ, not all the cigarette wholesalers in the LV.

To get the $80 million figure that Thode is using, you have to believe that all the cigarettes sold in the Lehigh Valley are coming from City Center Wholesale. Obviously that is not the case.

Now, could City Center Wholesale buy up other cigarette wholesalers? Sure. But are they going to buy up all the wholesalers in the LV? Are they at any point going to be selling all the cigarettes? Of course not.

I don’t see any plausible way to get to the $80 million figure Dr. Thode is using. This is simply a political talking point meant to confuse people about the NIZ.

Comments

  1. John says:

    As I understood Steve’s point, he was saying that it’s possible that all the cigarette wholesalers (there aren’t many) could relocate into the NIZ and this would be the impact. $5 rents and all…..

    Oh, and part of Topper’s deal there is that Center City Cancer – er, Investment will wholesale all the cigarettes to Topper’s gas stations. Expect CCCS’s revenue to go up as a result.

    But the key point he was making is that there is no cap on the NIZ tax revenue play, and because of how poorly this legislation was drafted it has the potential of blowing a huge hole in the state’s tax base. Sorry, but that’s indisputably true.

  2. Steve Thode says:

    Dear Genius Geeting,

    Your logic is so stupid! It doesn’t have to be one wholesaler, it can be many sharing the same distribution facility, or, it can be more than one distribution facility. Why not? As I said, 5 million cartons of cigarettes are sold a year with 20-25 miles of Center City Allentown.

    Try, just try, a little first-grade arithmetic. 5 million cartons a year is about 100,000 cartons a week. Let’s say cigarettes stay in a warehouse for 2 weeks. Average inventory is then 200,000 cartons. How much space does that take up? 200 cartons stacked up just 15 feet takes up just one square foot of floor space. So, you can easily fit 200,000 cartons of cigarettes in a storage area of nor more than 5,000 – 8,000 square feet of floor space – with plenty of space to move around.

    JB Reilly’s take (to be applied to debt service), based on using 8,000 square feet, is a breathtaking $10,000 per square foot per year! Just from the cigarette taxes!

    Now tell me ole JB wouldn’t make a cigarette wholesaler a much sweeter deal than any landlord outside the NIZ. Go ahead, I dare you! So sweet, every cigarette wholesaler from miles around would ant to be in the NIZ. Maybe even some who service the Philadelphia area which collects another $330 million a year in cigarette taxes.

    I’m only confusing people who don’t understand first grade arithmetic.

    • John.Jay says:

      Could you please explain why J.B. Reily personally benefits more from a cigarette merchant compared to any other merchant? $10,000 / ft^2 directly in his pocket seems to be way too good to be true.

    • Jon Geeting says:

      Again, I grant you the point that expansion is possible, and even likely. However, the current tax revenues from City Center Wholesale are projected to be $7.2 million. The idea that City Center will eventually come to sell all of the 5 million cartons sold in the Lehigh Valley is just baseless conjecture on your part, designed to confuse people.

  3. John.Jay says:

    aslo, could someone please give a link with some real economic analysis that shows NIZ office rates are going to be $5 / ft^2. This seem like some random number Mr. O’Hare pulled out of a hat. The City of Allentown is giving a number between $13-16 / ft^2 and noting that there are additional costs associated with locating a business in the downtown. While, I don’t necessarily accept Allentown’s number, it does seem closer to reality than $5 /ft^2.

  4. John.Jay says:

    Why is it whenever you point out a contradiction to Dr. Thode or ask for clarification, you never hear anything back? Seriously, you are an academic, it would be nice if you engaged the questions leveled at your analysis–that is the heart of what it means to be in the academy.

    • Jon Geeting says:

      He likes to cut and run in the comments. Throw a bomb and then not come back to see what other people had to say about it. Seems super thin-skinned.

      • John.Jay says:

        As you have already pointed out, it’s sad that he likes to use his academic pedigree to give credibility to his political arguments. That’s not legitimate debate. For instance, if I discuss a legal matter, I will note that I’m an attorney. But, if I am making a political or normative claim I have to stand toe-to-toe with my opponents as a citizen. That’s what democracy is all about–not throwing around titles to confuse people.

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