It's no secret that high taxes on items like alcohol and cigarettes – otherwise known as “sin taxes” – have produced durable black markets in those goods.
But in case more proof is needed, the Tax Foundation looks at excise tax rates on cigarettes versus smuggling. What they discover is entirely predictable:
Excessive tax rates on cigarettes induce substantial black and gray market movement of tobacco products into high-tax states from low-tax states or foreign sources.
New York has the highest inbound smuggling activity, with an estimated 53.5 percent of cigarettes consumed in the state deriving from smuggled sources in 2020. New York is followed by California (44.8 percent), New Mexico (45.5 percent), Washington (41.5 percent), and Minnesota (34.8 percent).
New Hampshire has the highest level of net outbound smuggling at 52.4 percent of consumption, likely due to its relatively low tax rates and proximity to high-tax states in the northeastern United States. Following New Hampshire is Indiana (35.6 percent), Virginia (27.6 percent), Idaho (25.8 percent), Wyoming (24.4 percent), and North Dakota (18.6 percent).
Illinois and New Mexico significantly increased their cigarette tax rate from 2019 to 2020. Both states saw major increases in cigarette smuggling.
Policymakers interested in increasing tax rates should recognize the unintended consequences of high taxation rates. Criminal distribution networks are well-established and illicit trade will grow as tax rates rise.
The old laws of economics as applied to addictive goods remain was strong as ever. But there's more to the smuggling story than just tax rates. Consider the consequences of the moral panic over vaping:
As the data from cigarettes clearly show, the risk of creating a new black market or fueling an existing one with operators willing and able to supply nicotine products to consumers is significant. In addition to tax evasion—costing states billions in lost tax revenue—black market e-liquid and cigarettes can be extremely unsafe. Multiple reports have confirmed nicotine-containing liquid coming into the U.S. from questionable sources. In 2019, cases of serious pulmonary diseases prompted the FDA to publish a warning about black market THC-containing liquid (the psychoactive compound in marijuana). Reports of illicit products containing dangerous chemicals resulting in serious medical conditions also arose in 2019. Providing vapers with a well-regulated legal market will limit the distribution of illegal products.
Government greed, mixed with economic illiteracy and doused with moral preening, produces a cascade of bad outcomes. All of which create more demand for state action. Rinse and repeat.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
READ NEXT: Nobel Prize Committee Unequivocally Makes the Right Decision >>
It goes a bit like this ” If I can make a buck, Who gives a f**k?
Smuggling and black markets? As New Hampshire knows, it’s merely a matter of driving across the state line from three high tax states to purchase cigarettes and alcohol, all of them top grade.
Here, in Colorado, the Pot Taxes make purchasing legal pot almost prohibitive so guess what? Tax revenues are way, way down because legal pot sales are way, way down. Yes, some of that is attributable to inflation on everyday items such as food and fuel. Still, it also indicates that people haven’t the means to purchase such “luxury” items thus throttling the State’s revenue source (which of course only a tiny portion of which is actually spent on its original intent sold to the taxpayers when campaigning for its passage.)…demand hasn’t gone away, nor have gross sales. But still, I’ll give you dollars to donuts to guess what side of this equation pays off…DA government…LMAO…
Same with legal cannabis. 25% in Nevada.
If it weren’t for legalized crime, a lot of politicians wouldn’t have a thing to do with serving in the government.
‘Make love a crime and we shall lust.’ — R.W. Emerson
NY hates competition.