Tobacco “Sin Taxes” – Who Are the Sinners?

Vaper’s Vortex

April 15, 2015


“Smugglers with ties to terrorist groups are acquiring millions of dollars from illegal cigarette sales and funneling the cash to organizations such as al Qaeda.”


Taxes are not the answer to:

  • Increasing state tax revenues or
  • Reducing the 540,000 annual deaths from smoking tobacco cigarettes.

Why is it so hard for politicians to understand that? Why is it so hard for Public Health to understand that? Why is it so hard for anti-tobacco extremists to understand that?

A February report from the nonpartisan Tax Foundation tells the story. Easy to read. Easy to understand. It even has lots of graphics. All of the following are compiled from taxes in place for 2013.

Instead of increasing tax revenues, raising taxes on tobacco cigarettes often reduces state tax revenues and increases criminal black market activity.

  • New York
    • $4.35 per pack added by the state
    • New York City adds an additional $1.50
    • Together, the highest cigarette tax in the nation.
    • The result – 58% of the cigarettes smoked in New York are smuggled across state lines.
  • Washington State
    • $3.025 per pack (a new bill has been introduced that would increase cigarette taxes to 95% of wholesale cost)
    • The result – 46% of the cigarettes currently smoked in Washington are smuggled across state lines.
    • The proposed 95% tax would also apply to e-cigarettes.
  • California
    • $0.87 (a new bill has been introduced that would increase cigarette taxes by $2 per pack)
    • The result – 31% of the cigarettes smoked in California are smuggled across state lines in spite of the fact that the current cigarette tax rate is the 16th lowest in the U.S.
    • What effect will a $2.87 per pack tax have on black market cigarettes coming into California?

The Tax Foundation report shows a direct correlation between high cigarette taxes and black market activity.

  • New Hampshire
    • $1.68 per pack
    • The highest rate of cigarettes smuggled out of state in the U.S. – 29%.
  • Vermont
    • $2.62 per pack
    • In spite of a hefty cigarette tax, 3.1 % of Vermont cigarettes are smuggled out of state.
  • Idaho
    • $0.57 per pack
    • 24% of Idaho cigarettes – smuggled out of state
  • Nevada
    • $0.80 per pack
    • 19% of Nevada cigarettes – smuggled out of state

So what does this tell a politician or public health representative who has even the slightest interest in making an informed decision regarding the merit of cigarette taxes?

Why does New Hampshire, with a $1.68 per pack cigarette tax have the highest rate of out of state sales of cigarettes in the U.S.? Because it’s practically next door to New York which, at $5.85 per pack, has the highest cigarette tax in the nation – almost three and a half times higher than New Hampshire’s tax.

Why does Vermont have a 3.1% rate of out of state sales in spite of a $2.62 per pack cigarette tax? Because it shares a border with New York state. New Hampshire still gets the lion’s share of New York’s black market because of its lower cigarette tax. Cigarettes smuggled from New Hampshire are cheaper than cigarettes smuggled from Vermont.

Why does Idaho have a 24% rate of out of state sales? Because it has a cigarette tax of $0.57 AND shares a border with Washington ($3.02 per pack cigarette sales tax) AND Oregon ($1.18 per pack).

Why does Nevada have a 19% rate of out of state sales? You guessed it. Nevada has an $0.80 cigarette tax AND shares a border with California ($0.87) AND Arizona ($2.00) AND Utah ($1.70).

Between 2009 and 2013, 32 states raised cigarette taxes. Of those 32 states, three met or exceeded tax revenue projections.

Washington D.C. increased their cigarette tax in October 2009 by 25% – from $2.00 to $2.50. Five months later, February 2010, revenue from cigarette taxes had decreased by $7 million.

In 2007, New Jersey raised cigarette taxes to $2.575, from $2.40. The tax revenue generated fell short of the politician’s projections – by $52 million. Overall revenue from cigarette taxes – dropped $22 million. New Jersey’s response – in 2009 New Jersey raised the tax again by another 17.5 cents.

In response to the highest cigarette tax in the nation, 58% of cigarettes smoked in New York state are smuggled across state borders. New York’s response – in February of this year they filed a $180 million dollar suit against UPS for delivering nearly 700,000 cartons of cigarettes from out of state.

An April 12th article in the Wall Street Journal quotes a 2004 report from the Washington Post:

“Smugglers with ties to terrorist groups are acquiring millions of dollars from illegal cigarette sales and funneling the cash to organizations such as al Qaeda.”

A CNN article from May of 2013 quotes the then Commissioner of the NYC police department:

“We discovered that individuals who were on our radar for links to known terrorists were engaged in a massive raid on the New York Treasury in the form of cigarette tax avoidance.”

In my previous blog post, we looked at the potential $300 billion savings for Medicaid if smokers switched to electronic cigarettes. Millions if not billions of additional taxpayer dollars could be saved with reasonable, well informed policies regarding taxing cigarettes. To say nothing of reducing crime, both domestic and international.

Yet we have a California Senator, Mark Leno, who has introduced a bill that will almost triple California cigarette taxes and classify electronic cigarettes as “tobacco products”. Senator Leno’s justification?

“We’re going to see hundreds of thousands of family members and friends die from e-cigarettes use just like we did from traditional tobacco use.”


We are sincerely interested in your thoughts and comments! Please join the conversation and invite others by sharing this post! Thank you for visiting our site and we hope that you will come back often!

 

Dave Coggin has a Master’s Degree in business and spent 35 years in corporate America. He is a co-founder and partner in DIYELS. He has spent the last five years actively researching and following the evolution of the e-cigarette industry. He is a strong proponent of e-cigarettes as the most promising option currently known for tobacco harm reduction. He may be contacted directly at dave@diyels.com.

The opinions presented here are exclusively those of the author. Vaper’s Vortex is offered as a service to our customers and followers. Anyone considering e-cigarettes as an alternative to tobacco cigarettes should seek qualified advice from a medical professional.

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