Cigarette Taxes and Smuggling: A 2016 Update
From: Mackinac Center for Public Policy
By Michael D. LaFaive, Todd Nesbit, Ph.D., and Scott Drenkard
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Introduction
Since 2008 the Mackinac Center for Public Policy — and more recently in conjunction with the Washington, D.C.-based Tax Foundation — has worked to estimate the degree to which cigarettes are smuggled into and out of American states. Our research, and that of other scholars too, suggests that smuggling is a rampant problem, particularly in states with high cigarette excise taxes.
Unintended and unforeseen consequences are a frequent problem in public policy. Few politicians realize when they vote for higher excise taxes that doing so may dramatically increase cigarette-related crime, such as smuggling. These crimes not only deprive local and state governments of tax revenues, they also tend to descend into violence, which produces all sorts of unnecessary damage. Policymakers should take these realities into consideration when contemplating how much to tax cigarettes.
