Liberals and other big government types think that by heavily taxing certain things, it’ll serve as a disincentive for people to buy those particular things. Like gasoline. The feds want higher gas taxes to “wean” people off dirty fossil fuels and on to cleaner forms of transportation, like mass transit.
Cigarettes are the same way. Politicians want to “do something” about all the smokers out there. How do they get people to stop smoking? They impose heavy taxes on cigarettes, hoping that that will dissuade poorer people from forking over hundreds of dollars per month just to maintain their tobacco habit.
It’s not so much that politicians care about people’s personal habits or health. It’s more that it’s an easy way for them to rake in tax revenue. They know that nicotine is addictive, and that most smokers will pay whatever the cost is. And in the end, governments rake in the dough. But only if people are buying the heavily taxed products legally.
Perhaps an unintended consequence of these sorts of “sin” taxes is that it encourages a black market. I can’t imagine being able to make much money at all selling untaxed cigarettes in my home state of Georgia. But up in New York, a pack of smokes can cost you $14.50, because the state tobacco tax is $4.35, and New York City’s local tax is $1.60. With taxes like that, they’re pretty much begging for people to resort to creating a cigarette black market.
It’s not just a black market though. The evidence shows that at least some of these illegal sales are funding terrorist organizations. The Daily Caller reported:
“The higher that revenue-hungry politicians raise tobacco taxes, the more profit smugglers can make,” claims Patrick Gleason, director of state affairs for Americans for Tax Reform, in an op-ed for The Wall Street Journal Sunday.
An unintended consequence of such tax hikes, Gleason says, is therefore to encourage cigarette smuggling, which also “[directs] some money toward nefarious causes” such as terrorism.
In recent years, both the Washington Post and former New York City police commissioner Ray Kelly have said there is evidence that smugglers are funneling millions of dollars from illegal cigarette sales to known terrorist groups, including al-Qaida.
Gleason notes recent cigarette tax hikes New York, New Jersey and Washington, D.C., among other places, have produced far less revenue than anticipated, and in some cases even correlated with an overall decrease in the amount collected.
In fact, he says, “Of the 32 state tobacco tax increases that went into effect between 2009 and 2013, only three met or exceeded revenue projections, according to industry data.”
In part, this may result from smokers reacting to the higher prices by reducing consumption, but Gleason suggests that a more significant factor is simply that “high tobacco taxes inevitably induce some low-income smokers to turn to black markets, where they can buy cigarettes at a fraction of the price.”
A recent study conducted by the Tax Foundation, an independent tax policy research center, supports this view, finding that “smuggling rates generally rise in states after they adopt large cigarette tax increases.”
Needless to say, taxes like these are only for the benefit of governments, so that they can waste tax money any way they want. If they don’t want cigarette black markets or money from illegal cigarette sales going to terrorist groups, maybe they shouldn’t tax cigarettes at all.