Higher Cigarette Taxes: Less Revenue, More Smuggling
June 13, 2002
States are hiking their cigarette taxes to make up budget deficits, but Bruce Bartlett of the NCPA warns that they may find higher taxes yield less revenue -- not more.
That is because higher state taxes make smuggling more attractive, encouraging individuals to buy cigarettes in low-tax states and take them across the border for sale in high-tax states. "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," says Bartlett.
- In Washington State, cigarette sales dropped after voters approved a 60-cent cigarette tax increase, according to the Washington State Economic and Revenue Forecast Council.
- 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 raised its cigarette tax by 34 cents to a total of $1 per pack on June 1, but Bartlett points out that "...a short drive into Virginia means big savings on cigarettes." Virginia's cigarette tax is 2 1/2 cents per pack.
- Texas is considering a Democratic proposal to more than triple the state cigarette tax, from 41 cents to $1.41 -- while taxes in the neighboring states of Arkansas, Louisiana, Oklahoma and New Mexico currently range from 21 to 31 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.
Source: Christine Hall, "Cigarette Taxes Prompt Smuggling, Critics Charge," CNSNews.com, June 11, 2002.
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