Massachusetts officials are dismayed that there is a burgeoning black market in cigarettes. Surprise, surprise, surprise. Black markets are what happen when we ban things or tax them too heavily. And the solutions the state seems ready to offer up will only make things worse.
The feds and each state impose taxes on cigarettes, with state excise taxes ranging from a low of 30 cents a pack in Virginia to a high of $4.35 in New York. Massachusetts ranks second, at $3.51. (iI increased by $1 last August.) The reasons for the taxes are two-fold. One, of course, is money: The Bay State collects over $500 million annually from tobacco. The second is the hope by health officials that higher prices will cut consumption.
Leave aside the inherent contradiction of this (the state relying on revenue from tobacco users while at the same time saying it doesn’t want people to use tobacco) and consider the impact on smokers themselves. In Massachusetts, name brands are now around $10 a pack; a pack-a-day smoker is dropping about $70 a week. Some smoke less or quit, which is what the public health crowd wants. Some just suck it up and pay the price. Others, however, are a little more devious.
Actually, it turns out, a lot of people are more devious. Tobacco giant Altria estimates that 16 percent of cigarettes in Massachusetts are sold on the black market, thereby avoiding the state excise tax. Research firm RTI International says that 30 to 42 percent of cigarettes in five Northeastern cities were smuggled, with the number at 40 percent in Boston.
And it’s easy to be devious: Just drive to another state with low excise taxes and buy them there. New Hampshire, for example, charges just $1.78 in excise taxes. Make a quick trip north for five cartons, and you’ll save over $86. Or if driving seems too tough, just go online. One cigarette website will sell you a case of Marlboros for $29.78 — a savings of more than $64 (!!!) over the Bay State’s prices.
Smuggling has state officials so worried that they created something called the Illegal Tobacco Commission.
All of this is thoroughly illegal, of course. Moreover, if individual consumers can figure this out, so too can other folks who see this as a potentially lucrative business. It’s an old story. Prohibition gave rise to rumrunners. The war on drugs gave rise to drug gangs. And tobacco taxes are now giving rise to cigarette smugglers. The state Department of Revenue figures that it’s losing perhaps $246 million annually to smuggling. The federal Bureau of Alcohol, Tobacco, Firearms, and Explosives says the illegal tobacco trade runs to the tune of $100 billion worldwide.
And as taxes rise, it’ll just get worse. The center of cigarette smuggling is New York, and the reason, of course, is that it has the nation’s highest excise taxes. But don’t worry, Massachusetts is getting there.
This has state officials so worried that they created something called the Illegal Tobacco Commission, which has been meeting over the last few months to sort out the problem. Its report is expected in March, but reading through the minutes of its meetings makes it pretty clear what the panel will recommend: stronger laws (right now, cigarette smuggling is a felony under federal law only if it involves 10,000 or more cigarettes), tougher penalties (commission members seem particularly intrigued with putting people in jail), and more resources for enforcement. As with the illegal drugs, you can see where this will go: dealers, violence, organized crime, and the criminalization of those who have a bad habit and can’t afford to pay the taxes.
This is so dumb it’s almost breathtaking. Even as the nation seems to be moving to dismantle some of the drug trade by legalizing cannabis, the war on tobacco is now creating the incentives for a new kind of organized crime. There’s an easy way to stop this. Cut taxes so that there’s little reason to purchase tobacco illegally. Revenues wouldn’t drop that much (since people now avoiding the excise tax would start buying legally). And truthfully, if you want people to stop smoking, don’t punish them financially. Urge them with facts and, if they choose to smoke anyway, so be it. They’re adults and entitled to make their own decisions.
Tom Keane can be reached at email@example.com.