NCPA - National Center for Policy Analysis

Growing Problem of Cigarette Smuggling

October 30, 2002

Organized crime and terrorist groups are increasingly involved in cigarette smuggling. Because of the wide variation in state cigarette taxes, it has become increasingly lucrative to smuggle cigarettes between states, and the penalties are much lower than trafficking in illegal drugs.

So far this year 17 states have raised their cigarette taxes. According to the Federation of Tax Administrators:

  • New York and New Jersey have the highest state tax rates, $1.50 per pack. New York City imposes an additional tax of $1.50, for a total tax of $3.00 per pack.
  • At the other end of the spectrum, North Carolina's tax is just 5 cents per pack, Kentucky's is 3 cents and Virginia's is 2.5 cents. [See Figure I.]
  • Thus it is easy to buy a truckload of cigarettes in North Carolina and sell them in New York City for a profit of almost $30 per carton.

Smuggling is a key reason why cigarette tax revenues are not keeping pace with tax increases. Between 1992 and 2000, the average state cigarette tax rate increased 64 percent while gross state tax revenues rose only 35 percent.

Furthermore, terrorists are smuggling cigarettes to finance their operations.

  • The Irish Republican Army has long been implicated in cigarette smuggling in Europe.
  • Recently, a member of Hezbollah was convicted of running a multimillion-dollar smuggling operation out of North Carolina.
  • On September 28, the Los Angeles Times reported that federal authorities have been probing western New York for evidence of cigarette smuggling as a source of Al Qaeda funding.

One smuggling scheme involving several local Arab Americans was broken up in 1999, said the Times.

Source: Bruce Bartlett, "Cigarette Smuggling," Brief Analysis No. 423, October 30, 2002, National Center for Policy Analysis.

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