Friday, April 19, 2013

President Obama's New Cigarette Tax Will Fuel an Already Booming Black Market in Smokes

CigarettePresident Obama's New Cigarette Tax Will Fuel an Already Booming Black Market in Smokes:
Drawing on the old adage, "if you want more
of something, subsidize it; if you want less, tax it," politicans
around the country have turned to burdensome tariffs on stuff they
don't like as a proxy for the hard work of passing formal
prohibitions. Booze, tobacco and ammunition have been popular
targets of late, But maybe politicans need an annotated version of
that adage. As the cigarette market demonstrates, when you wield
revenue collection as a tool of social engineering, what you get is
less of the legal version of the product that you're
trying to tax the hell out of. As outright prohibitionists
discovered (but ignored) long ago, savvy black marketeers always
stand ready to dodge the law to give people what they want. And
among the things people want are smokes at an affordable price.
That's an important point to remember just days after the president
called for a
94 cent hike in federal cigarette taxes
.
Michigan's Mackinac Center for Public Policy surveys the
cigarette market every two years to see just how it responds to
taxes intended to enforce what it calls "prohibition by price."
Then the center's analysts break down, by state, the estimated
percentage of the cigarette market served by
smugglers
who bring in goods from lower-taxed jurisdictions, or
even import counterfeit cigarettes from out of the country to the
booming market. With the highest cigarette tax in the country,

overtly passed to discourage smoking
, New York has managed to
drive the majority of the cigarette market to smugglers.
As the center's Michael D. LaFaive and Todd Nesbit, Ph.D. put it:
We find that New York currently holds the top position as the
highest net importer of smuggled cigarettes in 2011, with smuggled
cigarettes totaling a staggering 60.9 percent of the total market.
Not coincidentally, New York also has the nation’s highest state
cigarette tax at $4.35 per pack, plus another $1.50 levied in New
York City.
The top ten states in terms of smuggled cigarettes as a
percentage of the market for smokes  are:
  1. New York: 60.9
  2. Arizona 54.4
  3. New Mexico: 53
  4. Washington: 48.5
  5. Rhode Island: 39.8
  6. Wisconsin: 36.4
  7. California: 36.1
  8. Texas: 33.8
  9. Utah: 32.0
  10. Michigan: 29.3
Cigarette smuggling is lucrative. Mike Campbell, a
spokesman for ATF,
told CNN
, "We've had people trading our undercover agents kilos
of cocaine for cigarettes."
As heart-warming as it is to see people defying government
nannies to indulge in the vices of their choice, there is a very
real price to be paid when governments try to prohibit things
overtly or by tax, and thereby create a black market. LaFaive and
Nesbit point out that "[t]he destructive consequences of rampant
tobacco smuggling include the corruption of government officials,
violence, theft, counterfeiting and dangerous, adulterated
products."
Which is to say, the black market in smuggled cigarettes
resembles every other black market that prohibitionists have
managed to conjure into existence. Prohibitions
just don't work
. Well, unless you're a black marketeer, that
is.