Just Wait for the Fat Tax and the Black Market in Ding Dongs

By May 1, 2009Taxation

Marta H. Mossburg writing in the D.C. Examiner, “High cigarette taxes are not worth the consequences”:

Call it anecdotal. But why in the year following Maryland’s cigarette tax hike are the Comptroller’s agents on pace to arrest more than twice as many people for bootlegging them and seize four times as much contraband?

Hmm. Could the extra $1 tacked on to the price of cigarettes last year have something to do with more illegal activity? State legislators won’t say. Neither will the Comptroller’s office speculate on the issue – his police officers just arrest people for violating the law.

Tax revenues aren’t keeping up with projections, even factoring in the decline in smoking. It’s almost as if some smokers are switching to black-market smokes.

Patrick Fleenor, chief economist at the Tax Foundation, estimates that the black market is responsible for about 50 to 75 percent of the cigarettes sold in New York City, where state and local taxes account for $4.25 of a $10 pack. Tax revenue estimates also fail to factor a loss in sales and income tax revenue as convenience stores move across borders to lower-taxed states, Fleenor contends.

On April 1, the federal cigarette tax rose from 39 cents a pack to $1.01 to fund an expansion of the Children’s Health Insurance Program.

In Oregon, legislators are discussing a 60 cents-a-pack cigarette tax increase less than two years after voters rejected a tobacco tax hike. In Mississippi, “House and Senate conferees agreed Tuesday to recommend raising Mississippi’s cigarette tax from 18 cents to 68 cents a pack.” And in Arkansas, the Legislature has raised the tobacco tax by 56 cent a pack to fund $72 million in health care improvements.

Just keep doing what you’ve always done…

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