Mackinac Center Analysis: High Cigarette Taxes Increases Smuggling

More than 29 percent of Michigan’s total cigarette consumption in 2011 was smuggled into the state, according to Center analysts

mac-logoMIDLAND — The Mackinac Center for Public Policy today released its latest estimates for cigarette smuggling rates in 47 of the 48 contiguous states, including Michigan, which saw its overall rate increase 12.7 percent — from just over 26 percent to almost 29.3 percent. Michigan has the 10th highest smuggling rate in the nation.

“People don’t realize the degree to which government induces illegal and dangerous activity with bad policy,” said Michael LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative. “In this case, individuals cross borders for personal smokes and an organized, criminal class brings in contraband cigarettes by the van full.”

This is the third set of smuggling rate estimates published by Mackinac Center analysts. The first two studies were published in 2008 and 2010, and contained detailed histories of smuggling in Michigan and other states.

As cigarette excise tax rates have increased around the country, so too has rampant smuggling. The top smuggling rates in the nation — according to the Mackinac Center’s new study — include New York (60.9 percent); Arizona (54.4 percent); New Mexico (53 percent); Washington State (48.5 percent); and Rhode Island (39.8 percent).

“Cigarette smuggling is far from new but the degree to which illegal smokes are crossing from lower tax jurisdictions to higher ones is,” explained Todd Nesbit, adjunct scholar with the Mackinac Center and co-author of the Center’s analyses. “Our estimate for New York, for example, (almost 61 percent) is at an all-time high for any state we have examined and up 70.2 percent since just 2006.”

The authors have cautioned lawmakers repeatedly that smuggling is not the only unintended consequence of imposing higher cigarette taxes. High rates also induce violence against people, police and property (including theft and truck hijackings) and the production of adulterated and dangerous products.

“With high taxes on cigarettes, states are creating a ‘prohibition by price,’ and with all of the same consequences of real Prohibition,” said LaFaive.

An essay detailing the authors’ 2011 findings can be found at www.mackinac.org/18128.

A chart detailing smuggling rates and ranks is posted at http://www.mackinac.org/media/images/2013/LaFaive_Smuggling_Chart.jpg

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