Tobacco tax hike could backfire

Should they turn their gaze northward, state legislators looking to increase tobacco taxes by as much as $1 per pack will discover a cautionary tale.
One recent report out of Canada suggests that 48 percent of cigarettes consumed in Ontario, for example, come from smuggling — a rate that has increased and decreased with excise tax rates.
Our own research indicates that, if the $1-per-pack tax increase is adopted in Washington, the state’s cigarette smuggling rate will leap to more than 50 percent of the total market, along with other very expensive unintended consequences.
As recently as 1980, cigarette tax rates in Canada were in the same range as in most U.S. states. In a book published in 2000, “Tobacco Control in Developing Countries,” several economists describe how this changed beginning in the early 1980s. By 1994, Canadian federal and provincial cigarette taxes had been increased to “more than five times the U.S. average.”
As a result, smuggling accounted for 30 percent of the market by 1993. To combat this, Canada’s federal government (and some provinces) slashed cigarette tax rates in 1994. As predicted, legal sales rose dramatically and “the overall smuggling problem all but disappeared.”
The economics lesson didn’t stick, however. By 1998, Canada’s politicians were once again increasing cigarette taxes, widening the gap between their rates and most American taxing jurisdictions. As a result, Canada began experiencing renewed and rampant cigarette smuggling.
In March 2009, the Center for Public Integrity described Canada as having “a runaway black market,” complete with brazen heists from tobacco farmers, mobster- and gang-related crime, and even violence against police.
Of course, these unintended consequences are not limited to Canada. Examples of theft, violence and organized crime involvement in the illicit cigarette trade are reported with great frequency here in the United States, too.
In December 2008 we published a study with colleague Patrick Fleenor, titled “titled “Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review,” designed to measure the smuggling rates of 47 contiguous states. We recently updated the model to include changes to the Federal Excise Tax.
Based on that model, we believe that hiking taxes $1 per pack will lead to a leap in the total smuggling rate in Washington from 39.3 percent to 51.5 percent. That is, 51.5 percent of the cigarettes smoked in the state of Washington will be contraband.
We also expect legal paid sales to drop by at least 20 percent over 12 months following the tax hike, but as a direct result of smuggling, not from people quitting smoking. Research shows that as much as 85 percent of the after tax-increase change in cigarette sales is a function of tax avoidance — as opposed to smoking avoidance. The smuggling will occur in two major forms: casual and commercial.
Casual smuggling typically involves individual bargain hunters shopping for themselves or perhaps a friend over the state border or perhaps on the Internet.
Commercial smuggling involves large-scale organizations that ship semi-tractor trailers and vans long distances and maintain complex distribution systems.
Our estimates indicate that nearly 30 percent of the smuggling will come from these commercial haulers. It’s worth noting that some of the trailers are actually hijacked from underneath legitimate truckers themselves.
Anyone familiar with the history of alcohol prohibition knows that much of the booze consumed in the states then was brought in illegally from Canada. Today’s policymakers are engaging in a form of “prohibition by price” — making cigarettes effectively illegal by raising their costs — so we’re reliving many of the unintended consequences of that era.
Consider some parallels: violence against police, corruption of law enforcement, the sale of adulterated products manufacturerd by illegal producers (“bathtub smokes,” anyone?), smuggling, theft, hijacking, expansion of organized crime syndicates and even the sale of “loosies” – cigarettes illegally sold one stick at a time. (During Prohibition, men would sell single shots of whiskey to factory workers leaving manufacturing plants in the Detroit area.)
If state lawmakers wish to hike cigarette taxes, they must do so with the knowledge that the new rate is likely to generate a fraction of the new revenues they suspect and much more in the way of crime.
Today’s cigarette smuggling issues — on both sides of the U.S.-Canadian border — are the product of an addiction: Politicians addicted to the tax revenue generated by the sale of a legal product that people want.
Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Todd Nesbit is a Penn State economist and Mackinac Center adjunct scholar.

The Enjoyment Of Cigarettes Is To Die For

Have you ever wondered exactly what it is that people get out of smoking tobacco? If you are a non-smoker, it is a question that you will probably never have an answer to. It is hard enough to answer even for a smoker. The enjoyment that they get from a cigarette can be so vague that they even question themselves what it does for them. It does not make them high like other drugs do, at least not in a way that they can actually feel. However, even though a smoker can not really feel the effects it has on their body, the nicotine that they inhale does promote subtle changes that satisfies a physical craving that is experienced by addicted smokers.

It could be said that besides the physical satisfaction derived from inhaling nicotine, they also get a sort of emotional satisfaction when they smoke. It perhaps comforts them in some way that a non-smoker could not understand. Perhaps they get the satisfaction akin to what a non-smoker would get from relaxing in a hot bath or enjoying a cup of coffee. It just feels good to relax and enjoy a smoke. Smokers try to achieve this sort of satisfaction from a cigarette sometimes twenty or more times a day after they have become addicted. It is a strange habit to say the least. With a drug addict of another kind, you can almost understand the attraction because a drug like heroine or cocaine can transport the user to a more euphoric state, but tobacco does not do that,

Whatever enjoyment that people derive from smoking tobacco, it is an enjoyment that they would die for, literally. Not that drugs like cocaine or heroine will not also kill the user after a long period of addiction. Smokers must admit that they are willing to die for their habit because so many of them do everyday. The diseases and illnesses they end up with all because of smoking cigarettes can not be denied. While there are many that eventually find a way to quit this nasty habit, there are millions more that never will They will go to there grave huffing for breath and puffing on that last smoke.

It is so difficult to comprehend why someone would sacrifice their good life all for the sake of inhaling smoke day after day. That is what they do. They wake up smoking, they go through their day smoking, and they go to bed smoking at night. They must have a cigarette when they get the urge for one or they can become terribly anxious and irritable in most cases. These are true signs of an addiction. The only hope a tobacco smoker has is if they realize soon enough that they must find a way to give up the habit. There are many approaches used for this and it is a shame when a person dies from smoking having never found one of them.