Thursday, December 16, 2010

Coming Tomorrow: Mackinac Center for Public Policy Cigarette Taxes and Smuggling Study

State cigarette excise taxes vary around the country from a low of 17 cents per pack in Missouri to a whopping $4.35 per pack in New York (see map above, data here). Add another $1.50 per pack in New York city taxes, and a pack of Marlboros in Manhattan can now cost as much as $14, according to this recent New York Post article.  As you might expect, those prohibitively high taxes have fueled a huge black market in New York, and the Post reported that "Illegal cigarettes are pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China."

In a study to be released tomorrow by the Midland (MI)-based Mackinac Center for Public Policy on cigarette smuggling rates for 47 of the contiguous states, Director of Fiscal Policy Mike LaFaive and co-author of the study, estimates that 47.5% of cigarettes purchased in the state of New York during 2009 were smuggled.  And that was before the $4.35 per pack tax went into effect in July. According to the Mackinac Center research, the top five states for cigarette smuggling in 2009 were:

Arizona (51.8 percent);
New York (47.5 percent);
Rhode Island (40.5 percent);
New Mexico (37.2 percent); and
California (36.3 percent).
  
Arizona's high smuggling rate can be explained by recent tax hikes there and its proximity to Mexico.  Rhode Island's third place smuggling rank is likely due to its $3.46 per pack cigarette tax in 2010, second only to New York.  

The new study is an update of the Mackinac Center's 2006 study "Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review, which estimated cigarette smuggling by state and documented how smuggling undermines the two major reasons that states raise cigarette taxes: to decrease smoking for health reasons, and to increase state tax revenue. 

More details to follow once the new report is released publicly tomorrow. 

11 Comments:

At 12/16/2010 11:47 PM, Blogger Benjamin said...

Milton Friedman advised taxing economically negative activity and pollution.

Of all taxes, cigarette taxes strike me as the most reasonable...would you rather tax productive behavior, such as working or investing?

There should be a hefty and enforced national cigarette tax.

 
At 12/17/2010 2:16 AM, Blogger bob wright said...

Taxing negative economic activity is a good idea.

We could start by giving every taxpayer a refund based on the number of pages in every law passed by the U.S. congress.

A 2,000 page health care bill would result in a $2,000 refund for every tax payer.

 
At 12/17/2010 3:50 AM, Blogger PeakTrader said...

Someone once told me when cigarette taxes went way up his smoking increased.

When cigarettes were cheap, he smoked half a cigarette and threw it away, and when they became expensive, he smoked the whole cigarette, and the second half was more powerful than the first half.

I don't know if he also bought stronger cigarettes, to compensate for the higher price, or bought illegal cigarettes.

 
At 12/17/2010 7:01 AM, Blogger juandos said...

"Milton Friedman advised taxing economically negative activity and pollution"...

Per your usual style pseudo benny, pure drivel...

"Of all taxes, cigarette taxes strike me as the most reasonable...would you rather tax productive behavior, such as working or investing?"...

I think you and your ilk should be taxed excessivly now that I think about it...

You do neither work or invest but then again waste is waste...

"There should be a hefty and enforced national cigarette tax"...

Hmmm, same argument could be made for people who elect the likes of Boxer, Feinstein, or Boxer to their respective posititions, they're a lot more costly and contribute absolutely nothing to society...

 
At 12/17/2010 7:26 AM, Blogger geoih said...

Quote from Benjamin: "Of all taxes, cigarette taxes strike me as the most reasonable..."

Isn't it great that we have so many want-to-be dictators to tell us all what's good or bad.

Then once told what's good, these same dictators are just as willing to use all manner coercion and violence to enforce their enlightened decrees.

Be good, or we'll kill you.

 
At 12/17/2010 9:22 AM, Blogger Eric said...

I believe the black market has enticed other states to attempt to capitalize. Tennessee enacted a 216% tax increase in 2007 to the current rate shown on the map. Revenues went down 20%. State Dept. of Revenue Troopers were violating interstate commerce clause staking out convenience stores in KY - confiscating your smokes and automobile if you bought back more than 2 cartons. Since then, KY raised their tax 100% in 2009 and Mississippi raised theirs 278% in 2009. Tobacco federal buyout subsidies also ended in 2005. Lots less farmers growing it without a guaranteed min. price and buyer. They took their final fed quota lump sum buyout money and quit farming (~80% of them).

 
At 12/17/2010 10:44 AM, Blogger bix1951 said...

what I really like here is that with 50 states you have a laboratory with legislatures experimenting on their economies. Government policy in California, for example, seems to have ruined the state. Texas policies seem comparatively benign. It is better for the states to compete on things rather than have the feds run everything. Then you can have some choice over the regime that runs your life.
And we can learn what works and what doesn't.

 
At 12/17/2010 1:36 PM, Blogger VangelV said...

Of all taxes, cigarette taxes strike me as the most reasonable...would you rather tax productive behavior, such as working or investing?

There should be a hefty and enforced national cigarette tax.


But this type of sentiment never works out very well because if there is demand for an activity someone will develop a market for it. While small taxes may simply be a nuisance and not worthwhile for a black market to develop as soom as they get to the "hefty" level you will see people step up to the plate and help out consumers looking for a better deal.

Why should I care if some idiots want to shorten their lives by engaging in activities that are harmful? Will I tax single men because marriage would provide them with a longer and healthier life? Will I tax those that choose to walk home when they are drunk? Or those that have too many sexual partners? Eat too much? Eat too little? How about those that choose not to increase their level of education? Where do you stop? If government gets the power to meddle in some voluntary activities where is the line over which it cannot cross?

 
At 12/17/2010 1:37 PM, Blogger VangelV said...

Per your usual style pseudo benny, pure drivel...

Did you expect something different?

 
At 12/17/2010 1:55 PM, Blogger Mike said...

Is it just me or did anybody else notice that California has a lower tax than most of its neighbors (even lower than Texas) but has the same problems as New Mexico?

Looks like the smuggling problems happen (large-scale) in places with at least semi-high taxes AND areas where Native American have tax free businesses close to state population centers.
The high(ish) taxes in Texas haven't started a big enough run from Louisiana to crack the top 5 and you could make a profit by just driving across the state line.

 
At 12/17/2010 2:27 PM, Blogger juandos said...

"Did you expect something different?"...

I keep hoping vangIV, hope is eternal...:-)

 

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