Bautista Vivanco of the Cato Institute said on April 29 that higher nicotine taxes and restrictions would not just hit consumers; they would expand illicit trade, reward criminal gangs, and expose buyers to illegal products with fewer safeguards.
The discussion comes as New York considers redefining nicotine pouches as “selected nicotine products” in Gov. Kathy Hochul’s FY 2027 Executive Budget. Under the proposal, nicotine pouches would be taxed at 75% of the wholesale price—the same rate as most other tobacco products—even though the pouches contain no tobacco leaf and involve no combustion.
“Increasing the tax burden of nicotine would also be a disaster for law and order. When taxes go up, so does illicit trade,” Vivanco wrote in a commentary for the Cato Institute. “Criminal gangs profit from selling illegal nicotine products and funnel that money into other unlawful activities. Cigarette smuggling is already prevalent in the jurisdictions where these products are most heavily taxed. A large tax hike on nicotine products might cause a similar outcome. Banning, taxing and otherwise restricting the sale of a product like nicotine enriches criminal gangs and puts consumers at risk,” he said.
Rutgers University said the share of discarded cigarette packs across all five New York boroughs carrying the proper NYC stamp had fallen from 39.3% in 2011 and 23.7% in 2015 to 16.6% in 2024. The university said most packs came from out of state or carried no stamp, underscoring how persistent tax differentials can redirect sales into gray and black-market channels.
Reuters reported in 2025 that illegal U.S. sales of unauthorized flavored disposable vapes reached at least $2.4 billion in 2024, citing Circana retail data. Those products represented roughly 35% of tracked e-cigarette sales in convenience stores and supermarkets, even though the FDA has authorized only a limited number of vaping products, illustrating the scale of the illicit nicotine market already operating in the U.S.
Black-market products carry greater risks because they are sold outside regulated channels and may contain undisclosed or dangerous additives. The CDC has warned consumers not to use THC-containing vaping products obtained from informal sources such as friends, family, or online and street dealers, and linked the EVALI outbreak to illicit-market products containing vitamin E acetate.
Bautista Vivanco is a health policy research associate who studies FDA drug approvals, health-related government budgets, and global health indicators. According to the Cato Institute’s bio, he is from Argentina and holds a BA in Economics and Political Science from Winthrop University.
