Tobacco companies and anti-smoking groups alike say that high cigarette taxes will cost governments billions of dollars this year as smugglers step in to meet consumer demand.
A study conducted by the Tax Foundation in February compares data from 2006 and 2013, and “finds that smuggling rates generally rise in states after they adopt large cigarette tax increases.” (RELATED: Cigarette Tax Increases Not Producing Desired Revenues)
“Public policies often have unintended consequences that outweigh their benefits,” the foundation explains, and “one consequence of high state cigarette tax rates has been increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states.”
In New York, for instance, cigarette taxes have increased 190 percent since 2006, while smuggling has risen 62 percent. New York leads the nation in both categories, with a tax rate of $4.35 per pack and untaxed cigarettes making up an estimated 58 percent of the overall market. (RELATED: Study: Smugglers Help Smokers Evade High Cigarette Taxes)
The high rates of cigarette tax-evasion in New York and other high-tax states not only undermines the purpose of those taxes, but actually costs them around $5 billion per year in lost tax revenue, according to The New Tobacco Road, a website run by the RJ Reynolds Tobacco Company.
The claim is buttressed by a number of studies conducted in recent years by think tanks, including the Mackinac Center and the Tax Foundation, as well as research from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), which projects that revenue losses will total roughly $5.5 billion in the U.S. this year.
Naturally, assertions made by the tobacco industry — or any industry, for that matter — are worth taking with a grain of salt, but in this case, they are seemingly vindicated by some of the industry’s staunchest opponents. (RELATED: Cigarette Taxes May Help Finance Terrorism)
The Framework Convention Alliance (FCA), a coalition of anti-smoking groups organized by the World Health Organization to promote tobacco control globally, estimates that, “illicit trade in cigarettes represents approximately 10.7 percent of global sales, or 600 billion cigarettes annually,” and reduces government revenues by between $40 billion and $50 billion per year.
The two lobbies even offer similar prescriptions for dealing with the problem of cigarette smuggling, with both groups urging harsher punishments and stronger enforcement measures. (RELATED: Illinois Boost Cigarette Tax, Police Promise to Hammer Evaders)
The FCA eschews specifics, calling simply for “a global effort … to ensure the application of appropriate penalties and effective enforcement strategies against all forms of illicit trade.” (ANTLE: Is Selling Untaxed Cigarettes Now A Capital Offense?)
New Tobacco Road, similarly, argues that, “The cost and risk of trafficking in tobacco products must be raised substantially,” and recommends imposing significant fines and penalties on smugglers, along with allocating more resources to enforcement. (Coulter: Dying For A Cigarette In New York)
Time will tell whether that approach proves effective. If it does, expect smuggling rates to decline significantly in New York, where selling untaxed cigarettes is now apparently a capital offense.
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