In addition, several states have either implemented or are considering implementing flavor bans on cigarettes. These bans risk further escalating tax avoidance, tax evasion, and illicit sales in the U.
There are already reports of nicotine-containing liquid coming into the U. In addition to the dangers to consumers, the legal market would also suffer, as untaxed and unregulated products would have significant competitive advantages over high-priced legal products. This would impact not only the large number of small business owners operating over 10, vape shops around the country, but also convenience stores and gas stations relying heavily on vapers as well as tobacco sales.
Policymakers should not lose sight of the law of unintended consequences as they set rates and regulatory regimes for tobacco and vapor products alike. Cigarette tax rates have changed for three states since Illinois, New Mexico, and Virginia. The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you.
Would you consider contributing to our work? We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better? His focus is on excise taxation and supporting the team developing principled positions on various excise taxes ranging from gasoline to tobacco. An excise tax is a tax imposed on a specific good or activity.
Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and make up a relatively small and volatile portion of state and local tax collections. November 24, Ulrik Boesen. Our work depends on support from members of the public like you. Would you consider contributing to our work?
We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better? Most of the cigarettes were sold in New York. There is also a legitimate question as to how much good the ban will do. A February study published by the National Bureau of Economic Research examined Canadian provinces that banned menthol cigarette sales. It found that youth and adult smokers simply found substitutes for menthols in other, nonflavored cigarettes or bought preferred menthols on Indian reservations.
In addition to all of this, states and local units of government have taken to banning other flavored products, including those used in vaping. It should not strain credulity to suggest that those products will also ride into illicit markets on established cigarette smuggling supply chains. Aside from fueling illicit trade, local bans also risk moving economic activity out of its taxing jurisdiction with no positive effect on public health.
Duluth, Minn. Lawmakers in many states and localities repeatedly turn to cigarette excise taxes to raise money. They may try to do so again to fill recently drained coffers. They should reconsider. High cigarette taxes drive more than revenues; they often drive massive illegal smuggling and other unintended consequences.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author or authors and the Mackinac Center for Public Policy are properly cited. Our statistical model estimates that smuggling there will leap from near zero — just 1. An increase of 11 percentage points may not sound like much, but it represents an eightfold increase in cigarettes smuggled, from 3. Our model estimates that if the increase is adopted, smuggling would increase from an already high portion of This rate would place the state second in the nation for smuggled smokes, behind New York.
Our model estimates that, all other things equal, the smuggling rate would jump to 44 percent of total consumption. Such a leap would mean that 60 million packs of cigarettes would be consumed without excise taxes accruing to the state. Kansas is already surrounded by lower-taxed states. Tax evasion and avoidance is not the only negative consequence of high excise taxes on cigarettes.
We have also reported cases of theft — from retailers, wholesalers and from truckers. Police have been threatened with violence and have even been co-opted by the corrupting influence of easy smuggling dollars. One police officer in Maryland used his county cruiser to escort a shipment of smokes to their destination before he was caught.
He was sentenced to prison in With a strong preference for the habit, many smokers turn to the illicit market. Some states are probably relying too heavily on high cigarette excise taxes for revenue and the purported health benefits. The same states that made the top five in the past are in the top five again, though other states appear to want a promotion into that rarified smuggling air and have gunned for higher excise taxes.
Any state looking to raise its cigarette excise taxes should be acutely aware of the myriad unintended consequences and the unreliable revenue stream these taxes provide.
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