Unintended Consequences of Cigarette Taxes: Black Markets and Smuggling
February 10, 2015
States across the country tax cigarettes at different rates -- many have raised their cigarette taxes in order to deter people from smoking. But like many government policies, the tax has unintended consequences: it has resulted in high cigarette smuggling rates.
Scott Drenkard and Joseph Henchman of the Tax Foundation highlight the problem. For example:
- A whopping 58 percent of the New York cigarette market consists of smuggled cigarettes. It is no coincidence that its cigarette tax (at $4.35 per pack) is the highest among the 50 states. New York City also imposes a $1.50 per pack tax. Since 2006, the New York tax rate has risen 190 percent, and the smuggling rate has risen 62 percent.
- Similarly, Illinois raised its cigarette tax by $1.00 in 2012. From 2012 to 2013, the smuggling rate in Illinois rose from 1.1 percent to 20.9 percent.
To see if cigarette smuggling is a problem in your state, see the Tax Foundation's smuggling map here. States with the highest smuggling rates are New York, Arizona, Washington, New Mexico and Rhode Island.
Source: Scott Drenkard and Joseph Henchman, "Cigarette Taxes and Cigarette Smuggling by State, 2013," Tax Foundation, February 6, 2015.
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