Proposed Tobacco Tax Increase Will Simply Encourage More Smuggling

By John A. Charles, Jr.

State legislatures across the country have piled on the tobacco taxes over the past decade. Not surprisingly, this has created a growing problem of tobacco smuggling. As the tax rate rises, it encourages people to buy products from low-tax states and sell them illegally in high-tax states.

New York is the most obvious example of this problem. The Empire State has a tax rate of $4.35/pack, far higher than most other states. As a result, an estimated 57% of all cigarettes sold in New York are brought in by smugglers.

This creates multiple problems. Cigarette buyers are inconvenienced; state legislators lose the tax revenue they were hoping for; and smuggling increases the likelihood of violence, since there are no legal ways to settle disputes among competitors.

These lessons seem lost on Oregon legislators. Last Wednesday, the House Revenue committee considered House Bill 2555, which would raise the tobacco tax by $1.00/pack. Currently, only about 12.7% of Oregon cigarettes are smuggled. If the new tax passes, more sales will take place in the underground economy, and net revenue to the state could actually decline.

With smoking now banned in virtually all indoor environments, the non-smoking majority is completely protected from secondhand smoke. There is no reason for additional taxes just because smokers are in the minority.

John A. Charles, Jr. is President and CEO at Cascade Policy Institute, Oregon’s free market public policy research organization.