NCPA - National Center for Policy Analysis


October 19, 2005

With a cigarette tax of $2 a pack, fourth-highest in the nation, after another increase took effect July 1, Michigan has been making a name for itself as home to smugglers and other scofflaws of the tobacco tax, says the Heartland Institute.

Because most other states have lower tobacco taxes, there is a price differential between most other states and Michigan. Turning that differential into profit has become the goal of criminal enterprises that smuggle cigarettes into Michigan and other high-tax states, selling the smokes tax-free.

Besides smuggling, higher cigarette taxes have been linked to terrorism, theft and violence, says Heartland:

  • In 2002, two people were arrested in an FBI sting; the duo drove vans of illicit cigarettes from North Carolina to Detroit and allegedly used portions of their profits to subsidize Hezbollah, a terrorist organization in Lebanon with possible links to al-Qaida.
  • A resident of Michigan, arrested in a different operation, pleaded guilty to smuggling as much as $72,000 worth of illicit tobacco each month in Michigan; the U.S. Department of Justice says he gave a portion of his profits to an "orphans of martyrs program" run by Hezbollah.
  • In October 2004, a truck holding 135 cases of cigarettes worth more than $27,000 was hijacked in Michigan; the truck driver was reportedly pistol-whipped and blindfolded during the assault.

Michigan began a series of large cigarette tax increases in the 1990s, raising the incentive for illicit trafficking. In 1994, state raised its 25 cent cigarette tax to 75 cents per pack - a 200 percent hike. Taxes were increased an additional 50 cents per pack in 2002. The most recent increase of 75 cents took effect July 1, 2005, bringing Michigan's cigarette tax to $2 a pack.

Source: Michael D. LaFaive, "As Michigan's Cigarette Tax Climbs, Trafficking Surges," Heartland Institute, Budget and Tax News, Vol. 3, No. 8, September 2005.


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