California has long been a major smuggling state, largely due to its many ports and its border with Mexico.[*] Voters in California will decide in February 2011 whether to hike cigarette taxes by $1.00 per pack, for a total tax of $1.87 per pack. Should this proposal be approved, we estimate an increase in the state’s smuggling rate to 51.9 percent of the state’s total cigarette consumption, up from 36.3 percent. Most of the smuggled cigarettes would originate in Mexico. Based on our 2009 rankings, this would make California America’s biggest smuggling state in both smuggling rate and volume.[†]
[*] For a longer narrative on cigarette smuggling in California, see LaFaive, Fleenor, and Nesbit, “Cigarette Taxes and Smuggling,” (Mackinac Center for Public Policy, 2008), 58-65, http://www.mackinac.org/archives/2008/s2008-12.pdf (accessed December 10, 2010).
[†] One caveat is necessary: In 2010, the state of New York hiked its taxes to $4.35 per pack. This increase might lead to a higher smuggling rate than California’s, even with California’s proposed tax hike.