Report: High Cigarette Taxes Contributing to Increased Smuggling

Published in CSP Daily News

New York highest net importer of smuggled cigarettes at 60.9% of total state market

MIDLAND, Mich. -- The Mackinac Center for Public Policy has released its latest estimates for cigarette smuggling rates in 47 of the 48 contiguous United States. As cigarette excise tax rates have increased around the country, so too has rampant smuggling.

The top smuggling rates in the nation, according to the latest study, include New York (60.9%), Arizona (54.4%), New Mexico (53%), Washington (48.5%) and Rhode Island (39.8%).

Click here to view the full chart.

Click here for a sortable chart and further details provided by the Tax Foundation.

"People don't realize the degree to which government induces illegal and dangerous activity with bad policy," said Michael LaFaive, director of the Mackinac Center's Morey Fiscal Policy Initiative. "In this case, individuals cross borders for personal smokes and an organized, criminal class brings in contraband cigarettes by the van full."

This is the third set of smuggling rate estimates published by Mackinac Center analysts. The first two studies were published in 2008 and 2010.

"Cigarette smuggling is far from new but the degree to which illegal smokes are crossing from lower tax jurisdictions to higher ones is," said Todd Nesbit, adjunct scholar with the Mackinac Center and co-author of the report. "Our estimate for New York, for example, (almost 61%) is at an all-time high for any state we have examined and up 70.2% since just 2006."

The authors have cautioned lawmakers repeatedly that smuggling is not the only unintended consequence of imposing higher cigarette taxes. High rates also induce violence against people, police and property (including theft and truck hijackings) and the production of adulterated and dangerous products.

"With high taxes on cigarettes, states are creating a 'prohibition by price,' and with all of the same consequences of real Prohibition," said LaFaive.