Wednesday, Feb. 22, 2017

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Chantal Lovell
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MIDLAND — Updated research from the Mackinac Center for Public Policy and the Tax Foundation continues to demonstrate a causal link between large differences in cigarette excise tax rates between states and cigarette smuggling.

Using data from 2015 — the most recent year available — the Mackinac Center and Tax Foundation estimate the cigarette smuggling rates for 47 of the 48 contiguous states.

“Smokers may be an easy target for higher taxes, but our new findings show that rather than paying more, many obtain more affordable smokes through avoidance and evasion,” said study co-author Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center in Michigan. “While proponents of higher cigarette taxes are right in wanting to improve public health, it’s clear that states with high excise taxes have their goals undermined by smuggling and associated crime that are a direct result of the same high taxes.”

LaFaive and co-authors Todd Nesbit, a senior lecturer in economics at Ohio State University, and Scott Drenkard, director of state projects for the Tax Foundation in Washington, D.C., estimate smuggling rates by comparing the legal paid sales of cigarettes with published smoking rates by state. The difference between the two is explained by smuggling, either commercial or casual.

“Casual smugglers are typically individuals who cross into another taxing jurisdiction or shop online to acquire less expensive cigarettes,” Nesbit said. “Commercial smuggling involves long-haul, large shipments and organized sales for profit and both types play major roles in some states’ smuggling rates.”

This is evident in places like New York, which has the highest smuggling rate based on the updated data. An estimated 57 percent of consumption in the Empire State is due to smuggling. The state imposes a tax of $4.35 per pack and New York City adds on its own excise tax. With Pennsylvania next door and Virginia a not-too-distant drive, it is easy to see how casual and commercial smugglers make New York number one in the Mackinac Center’s rankings.

An interactive map of cigarette taxes and smuggling rates can be viewed here.

Arizona, Washington state, New Mexico and Minnesota also saw high rates of smuggling due to their high tax rates. Conversely, states that impose lower taxes than their neighbors — such as New Hampshire, Idaho, Virginia, Delaware and West Virginia — are net exporters of smokes. For every 100 cigarettes smoked in New Hampshire, an additional 72 were smuggled out and smoked elsewhere, the authors estimate.

“Wise tax policy begins with an understanding of all impacts, including those unintended ones that are often harmful,” said Scott Drenkard of the Tax Foundation.

View the updated research here.

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