The United States of Cigarette Smuggling

Some 56.9 percent of the cigarettes consumed in
New York state are smuggled in from another state. That’s a bigger
percentage than any other state, according to a
ranked map put together by analysts at the Tax Foundation. The
states with the next highest inbound smuggling are Arizona (51.5
percent), New Mexico (48.1 percent), Washington state (48 percent),
and Wisconsin (34.6 percent).

Cigarette smuggling is pervasive in large part because of the
high cigarette taxes some states impose. The sizable differentials
between higher-tax states and their lower-tax counterparts,
especially when those lower-tax states are nearby, creates a big
incentive to run cheap, low-tax smokes across borderlines.

So it’s not surprising to find that New York is not only the
state with the most inbound smuggling but the state with the
highest tax: $4.35 per pack—with an additional $1.50 tacked on if
you’re lucky enough to live in the Big Apple. According to the Tax
Foundation, both smuggling and cigarette taxes have risen rapidly
in New York during the last eight years. The rate of taxation is up
190 percent; smuggling has risen 59 percent over the same time
frame.

How does your state stack up in the cigarette smuggling
rankings? Check the Tax Foundation’s handy map to find out:

Higher cigarette taxes make legally purchased packs more
expensive. But they don’t always lead to the gush of new revenue
that legislators expect when those taxes are passed, in part
because of smuggling. When states count on that revenue (and spend
it) before it actually comes in, they
sometimes find themselves with budget holes as a result.

We’ve seen the same thing happen with the states involved in the
Master Settlement Agreement (MSA) with the big obacco
manufacturers: States basically partnered with cigarette makers in
exchange for a share of the revenue stream, which would then be
used to fund public health programs. But when the revenue
started to fall, states were left struggling to pay for the
programs they’d intended to fund with MSA money.