New study shows the depth of cigarette smuggling in the US and calls for cuts in taxation

cigarette smuggling in the USA

We have previously discussed the issue of high cigarette taxation with particular emphasis on the situation in the USA, where in the states with the highest taxes, such as in New York, with the price of a single pack of Marlboros being as high as $15, more and more consumers are forced to resort to buying illicitly smuggled in cigarettes, by the pack or in singles, in order to be able to smoke at a cheaper prices. In fact, if you are a smoker in New York, where the illegal cigarettes make up 58% of the market, you are most likely to be smoking a smuggled cigarette rather than a legal one.

The debate is hot and on-going and voices against the very high taxation are on the increase, one example being the recent commentary published in Forbes. Today, a new study comes to shed even more light on the facts and further strengthen the arguments against the excessively high taxation on cigarettes in certain US states, which not only burdens the American smoker but also at the end of the day means lesser income for authorities and great profits for illegal traffickers, who often even have terrorist connections.

More specifically, the Mackinac Center for Public Policy, a Michigan research and educational institute has published its annual cigarette smuggling study for the year 2013, which confirms that New York remains America’s number one smuggling state for inbound, illegal traffic at 58% of the total market. The study also estimates that nearly 25% of the Michigan cigarette market is comprised of contraband smokes. This time round the study was conducted in association with the Tax Foundation and it reaches the conclusion that cigarette smuggling is a widespread and uncontrollable problem for the entire US nation that requires urgent attention in order to redress the situation.

The authors point out that “high excise taxes on cigarettes have led to all sorts of unintended consequences: smuggling; violence against people, police and property; product and tax stamp counterfeiting and even the financing of terrorist groups.” Therefore they propose that American policymakers could roll back this illicit trade by cutting taxes, or adopting smarter and more intensive police tactics or both.

The study takes into account what it identifies as the two types of illegal smuggling that people engage in, the casual and the commercial smuggling. Casual smuggling occurs when individuals cross state lines to buy cigarettes or do so through purchasing cigarettes online on the internet, in small quantities intended solely for personal use. On the other hand, it is pointed out that commercial smuggling involves long-haul, large shipments from lower tax states such as North Carolina or Virginia into the states which impose the higher levels of cigarette taxation.

Besides New York, which comfortably occupies the number one spot, the top five inbound smuggling states also comprise Arizona with 49.3%, Washington with 46.4%, New Mexico with 46.1% and Rhode Island with 32%. Moreover, according to the findings, the top states for inbound casual contraband smuggling were New York and Washington, while Vermont and New York had the highest rates of inbound commercial smuggling.

The researchers attribute the fact that New York ranks so high in all forms of smuggling to the very high excise state and city tax rates it imposes on cigarettes, aided by the fact that it is located near the low-tax state of Virginia.

Indicative of the direct causal relation between higher taxes and increased smuggling figures is the fact that the biggest smuggling rate increase was recorded in Illinois, which jumped 16 places in the state rankings, currently occupying the 14th place with almost 21% in illicit cigarettes. This happened following recent significant increases in the cigarette excise taxes at city, country and state levels. In fact Chicago, now has the highest state-local cigarette excise taxes in the nation at $6,16.

The top states in terms of “exporting” smuggled cigarettes were found to be New Hampshire with 28.7%, Idaho with 24.2%, Delaware and Virginia, both at 22.6% and Wyoming with 21%. The study also highlights the case of the state of Michigan, which was found to have exported cigarettes equal to 3 percent of its total market to Canada in 2013. Moreover, it points out that loose tobacco trafficking is also an unintended consequence of high taxes on cigarettes, since roll-your-own products cost less whether the product is purchased legally or otherwise.

Besides the significant numerical data that the study presents what is perhaps more important are the remarks that the excessively high taxes imposed on a legal product, i.e. cigarettes, has had over the recent years many other unintended byproducts such as violence against police, people and property. As pointed out by the researchers “perhaps the most offensive is seeing the illicit trade in cigarettes be used to generate profits for terrorist cells operating globally and in the United States,” an observation that they go on to substantiate by referring to examples of known cases of cigarette smugglers who have been found to be members of terrorist groups or directly funding such groups, such as for example al-Qaeda and Hezbollah.

The authors of the study conclude the presentation of their findings with the urgent call for drastic action by officials, since, as they maintain “rampant smuggling — and its related ugliness — can be thwarted to a degree by cutting taxes, improving law enforcement operations, or both. We strongly suggest the former route. Higher excise taxes are the root of the problem so lower ones should be at the forefront of a solution.”

Here at we believe that smokers should have adequate access to reasonably priced, high quality cigarettes, so in line with upholding our principles we hope that the discussion on smuggling and its relation to excessive taxation will somehow indeed result in lower cigarette prices in the benefit of American smokers.