Posted on 06/11/2002 3:12:06 AM PDT by kattracks
CNSNews.com) - A number of states have raised cigarette taxes this year in an effort to fix their recession-wracked budgets. But higher cigarette taxes, critics say, have made smuggling more attractive, encouraging individuals to buy cigarettes in low-tax states and take them across the border for sale in high-tax states.
Federal prosecutors in North Carolina also say at least one smuggling operation involved taking the cigarettes to Michigan, where money from the sales was used to fund terrorist activity.
Proponents of tax hikes, like the Campaign for Tobacco-Free Kids (CTFK) and the AARP, argue that higher cigarette taxes discourage adults and teens from smoking. A ten percent tax increase reduces youth smoking by seven percent and adult smoking by three to five percent, according to the CTFK.
"Texas can expect a $1 per pack cigarette tax increase to prevent some 291,000 kids alive today from becoming smokers, save 134,000 Texans from smoking-caused deaths, produce $5 billion in long-term health care savings, and raise roughly $1 billion a year in new revenue," predicted William V. Corr, the group's executive vice president.
Texas is considering a Democratic proposal to more than triple the state cigarette tax, from 41 cents to $1.41. In the neighboring states of Arkansas, Louisiana, Oklahoma and New Mexico, the current cigarette taxes range from 21 to 31 1/2 cents per pack.
The AARP of North Carolina recently called on state legislators to raise the cigarette tax there, along with the alcohol tax, to stave off cuts in government health care spending.
"This revenue could go a long way toward offsetting some $330 million in possible cuts for health and long-term care services," said Von Velleta, state president of the AARP.
But tax proponents don't take smuggling into account, their critics say.
"The increase in cigarette taxes, at least in some states, has long passed the point at which it makes any sense, even from the point of view of revenue," said Bruce Bartlett, an economist at the National Center for Policy Analysis (NCPA).
Washington State is a case in point. According to the Washington State Economic and Revenue Forecast Council, cigarette sales dropped after voters approved a 60-cent cigarette tax increase. Sales were down 9 percent in January followed by another 27 and 24 percent drop in February and March, respectively, according to the council's senior economic forecaster.
Maryland, which June 1 raised its cigarette tax by 34 cents to a total of $1 per pack, is another case in point, says Bartlett.
"Anybody who lives in Price Georges County or Montgomery County who pays full price for Maryland cigarettes is pretty stupid or too rich to give a damn," said Bartlett, because a short drive into Virginia means big savings on cigarettes." Virginia's cigarette tax is 2 1/2 cents per pack.
"As long as you've got some states that are willing to keep their taxes low -- like Virginia, North Carolina and Kentucky -- you're going to have massive smuggling problems," said Bartlett, "especially in cases where a low tax state borders a high tax state."
Smuggling can take several forms, including Internet sales and tax stamp forgery. Mybutts.com http://www.mybutts.com/and Smokemcheap.com http://www.smokemcheap.com/are two Internet sites where smokers can purchase cigarettes and bypass their state and local governments' cigarette taxes.
The consequences of such tax avoidance and smuggling are serious, according to prosecutors, who are currently trying a case in U.S. District Court against two Lebanese men accused of smuggling cigarettes from low-tax state North Carolina to raise money for the terrorist group Hezbollah.
According to the government, the two accused smugglers transported North Carolina cigarettes to higher-tax state Michigan for resale. One defense attorney contends, not that the smuggling didn't take place, but that his client ran a legitimate business and was an innocent bystander in the smuggling scheme.
Maryland officials believe they are up to the enforcement challenge.
Maryland has been trying "to bust cigarette smugglers for the past four years," said Christine Duray, spokesperson for Maryland Comptroller William Donald Schaefer. "We're certainly stepping up our efforts to combat this problem."
"We do it all over the state pretty much, but obviously the big areas are down on the eastern shore and western Maryland," Duray continued. "Our plans are to increase our efforts ... to be more vigilant about businesses that might be helping out with the smuggling itself." That includes making sure everyone has appropriate stamps, not counterfeit stamps, she said.
Duray disputes the notion that tax revenue gains are offset by enforcement costs.
"Once we confiscate the cigarettes, after the trial ... we actually by law have to auction off the cigarettes," said Duray. "So money comes back from the cigarettes into the state's general fund. In essence, it pays for itself."
What's more, "a lot of time it's the manufacturers that buy them back, because they want to get a product off the market that might be associated with a crime or not in its best condition" because it's been sitting around for a few months, Duray explained.
Law enforcers aren't going after individual smokers yet, said Duray. "But if people start making a habit out of it and decide it's an easy way to make money, we're going to go after them."
E-mail a news tip to Christine Hall.
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Wow, someone finally opened an economics book I see. What idiot couldn't have seen that coming?
A recap of the Army's experience with this: The Army used to sell cigarettes really cheap to its soldiers in Germany compared to the price on the German economy. Despite warnings and prosecutions, the black market of soldiers selling cigarettes to Germans (at a profit for the soldiers and a discount for the Germans) prospered. They never could get rid of it. Then a few years back, they jacked up the cigarette prices in the name of health to as much as or more than the German prices. The black market disappeared.
Whenever you have a price disparity such as this, you will have a black market. This is the laws of economics, which are based on human nature, and that's not going to change anytime soon. Bad laws create criminals.
Just caught this. Futility at its finest. With the open borders between states, they may, if lucky, catch 5% of the wholesale black marketers. They'll catch none of the personal black market (get a couple cartons from the next state when you're there).
If the Army couldn't make a dent with rationed cigarettes (and tracked ration cards) and a quick, authoritative legal system (usually no trial necessary), these states don't stand a chance.
BTW, I remember the ration card days in Germany back in the 60's. Saw a few careers ruined because the temptation was just too great.
Reminds me of something else. I was a young GI who smoked before I went into the Army and continued to smoke until about 1963. I stopped (at least that time) because I knew instinctively it was bad for me. That was all before the Surgeon General's Warning was ever put on a pack of smokes. Anyone with half a brain knew it was bad for 'em. Now, it seems we need the nanny state to "guide" us.
"Maryland has been trying "to bust cigarette smugglers for the past four years," said Christine Duray, spokesperson for Maryland Comptroller William Donald Schaefer. "We're certainly stepping up our efforts to combat this problem.""A problem that they basically created with their outrageously high, discrminatory cigarette tax.
"We do it all over the state pretty much, but obviously the big areas are down on the eastern shore and western Maryland," Duray continued. "Our plans are to increase our efforts ... to be more vigilant about businesses that might be helping out with the smuggling itself." That includes making sure everyone has appropriate stamps, not counterfeit stamps, she said.But that's a lot of man-hours devoted to a problem the state helped cause. You'll probably have to hire more help.
Duray disputes the notion that tax revenue gains are offset by enforcement costs.Yeah, OK, whatever you say. What a crock!"Once we confiscate the cigarettes, after the trial ... we actually by law have to auction off the cigarettes," said Duray. "So money comes back from the cigarettes into the state's general fund. In essence, it pays for itself."
These greedy politicians think that the people here are too stupid to figure out how to beat their confiscatory taxation schemes.
The small business's in MD are losing far more than just cigarette business.
This isn't a joke; I have friends who smoke "Death" brand cigarettes. It's a black carton with a skull and crossbones and DEATH in large white letters, "For an honest smoke." The text also says stuff along the lines of "this will kill you" and "We believe in the right to market a product that kills when used exactly as intended." A percentage of pre-tax profits also goes to cancer research.
It still has to have the European equivalent of the Surgeon General's warning on it though.
During the show, NY Attorney General Elliot Spitzer blamed the smuggling problem on VA for having their taxes too low.
Never was it mentioned, suggested, no implied that the problem was NYs taxes were too high.
What a gold mine!
We can start taxing "progressives" and stupidity!
What a golden goose that is...
Equal protection?
What stinkin' Constitution?
This is a good point. It's already been shown that teenagers can score pot more easily than alcohol or cigarettes, so availablility has never been a factor in choosing pot -- they just preferred cigarettes. Now maybe the cost factor will send some in that direction.
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