Maryland Plans on Big Boost For Black Market Cigarettes

Strictly speaking, Maryland
lawmakers aren’t overtly planning a gift to cigarette
smugglers, but that’s certainly going to be the ultimate result of
a proposal to massively hike taxes on all sorts of tobacco
products. The share of cigarettes supplied in the state by the
black market more than doubled from 2006 to 2011 under the pressure
of politicians’ appetite for other people’s money. That can only
continue to grow if
SB 589 becomes law and gives the state the fourth highest
cigarette tax rate in the country.

According to Jeremy Bauer-Wolfe at
MarylandReporter:

The Senate Budget and Taxation Committee heard testimony
Wednesday on
SB 589, which would increase the tobacco tax rate from $2 for a
pack of cigarettes to $3. The bill also calls for steep hike on all
other tobacco products — from 30% to 95% of the wholesale
price.

Products affected would include cigars, roll-your-own, and forms
of smokeless tobacco.

The bill would give Maryland the fourth highest tobacco tax
rates in the nation. No. 1 is New York at $4.35 per pack of
cigarettes. (Cigarette smugglers nabbed by comptroller’s agents
coming through Maryland from 30 cents-a-pack Virginia are often
headed to New York.)

According to estimates by the Mackinac Center for Public
Policy, which tracks tobacco taxes and smuggling, 25.76 percent
of Maryland’s cigarettes come from the black market, up from 10.38
percent in 2006 (the state doubled cigarette taxes in 2007). Not
only is it logical to expect that a further hike in taxes would
increase illegal sourcing of tobacco products, but Mackinac’s
Michael D. LaFaive and Todd Nesbit were even kind enough to suggest
by how much:

We also modeled for Maryland the impact of a recently proposed
50 percent hike in its excise tax, from $2 per pack to $3. If such
an increase were enacted in Maryland, the proportion of smuggled
cigarettes consumed by its smokers would leap from 26 percent of
the total market to 52 percent, and would actually result in a net
decline in tobacco tax revenues.

In New York, with the highest taxes in the country, the black
market already supplies 60.94 percent of the market, so a
52 percent share seems quite plausible if Maryland lawmakers move
forward with their attempted mugging of the state’s smokers. To
beat the taxman, smokes are smuggled in from low-tax jurisdictions,
from out of the country, or manufactured off the books and
under the legal radar.

Legislators really are the gift that keeps on giving—to people
who find economic opportunity in restrictive laws and high taxes.
Participants in the underground economy may want to consider
settting aside a few bundles of smoke-infused cash as thank-you
campaign donations to legislators. If they didn’t already do so to
get to this point, that is.