• April 21, 2024

Tax at root of cigarette smuggling

tax photo
Photo by Got Credit

Cigarettes that are smuggled into New York, US, account for about 57 percent of the state’s consumption, according to a piece by Joseph Henchman and Scott Drenkard published on the Tax Foundation website and citing a report by the Mackinac Center for Public Policy.

Henchman and Drenkard list the key findings as:

  • Large differentials in cigarette taxes across states create incentives for black market sales.
  • Smuggled cigarettes make up substantial portions of cigarette consumption in many states, and greater than 25 percent of consumption in twelve states.
  • The highest inbound cigarette smuggling rates are in New York (56.9 percent), Arizona (51.5 percent), New Mexico (48.1 percent), Washington (48 percent), and Wisconsin (34.6 percent).
  • The highest outbound smuggling rates are in New Hampshire (24.2 percent), Wyoming (22.3 percent), Idaho (21.3 percent), Virginia (21.1 percent), and Delaware (20.9 percent).
  • Cigarette tax rates increased in 30 states and the District of Columbia between 2006 and 2012.

The authors say that policy responses have included banning common carrier delivery of cigarettes, greater law enforcement activity on interstate roads, differential tax rates near low-tax jurisdictions, and cracking down on tribal reservations that sell tax-free cigarettes.

However, they say, the underlying problem remains: high cigarette taxes that amount to a ‘price prohibition’ of the product in many US states.

The Tax Foundation piece is at: https://taxfoundation.org/cigarette-taxes-and-cigarette-smuggling-state/

The Tax Foundation report can be downloaded at: https://files.taxfoundation.org/legacy/docs/FF421.pdf.