The boom in smuggling to avoid cigarette taxes

More than half of the cigarettes sold in New York State are smuggled in from other places to avoid the Empire State's taxes on smokes, which have soared nearly 200 percent since 2006, according to a report issued by the conservative Tax Foundation.

New York is the highest net importer of smuggled cigarettes -- illegal smokes account for 56.9 percent of the state's total market. New York's cigarettes tax is $4.35 per pack, the country's highest. The situation there isn't unique. The Tax Foundation also cites a study that found that 58.7 percent of discarded cigarettes found in five Northeastern cities lacked proper tax stamps.

Taxes on cigarettes, which are designed to discourage smoking, vary widely. States such as Missouri, North Carolina and Virginia have levies of less than a $1 per pack. These wide differences make smuggling "both a national problem and a lucrative criminal enterprise," according to the Tax Foundation.

Antismoking activists have long argued that fewer people will buy cigarettes if they're expensive. Chicago recently raised its cigarette taxes for that reason. Combined with state and local levies, the total is now $7.17 a pack.

The smuggling problem "is a lot smaller than the study lets on," said Thomas Carr, director of national policy at the American Lung Association, noting that the Tax Foundation's data come from the Mackinac Center for Public Policy, which has received funding from the tobacco industry. "Tobacco companies are generally against higher tobacco taxes."

In neighboring New Jersey, convenience store owners are fighting efforts by the state legislature to impose new taxes on e-cigarettes that would nearly double their cost. E-cigarettes fans tout them as a healthier alternative to conventional smokes.

Activists such as the American Lung Association, however, argue that no evidence backs up that claim and others, such as e-cigarettes help people stop smoking regular cigarettes. Nonetheless, electronic smokes are surging in popularity, and experts note that should disparities in e-cigarette taxes develop among the states, they could also become attractive to smugglers.

"I would imagine it would be easier to smuggle electronic cigarettes because they are smaller," says Tax Foundation economist Scott Drenkard. "If you have any kind of differential, you are going to see arbitrage."

Beyond interstate trade, cigarette smuggling is a global problem.

Last year, law enforcement officials seized $4.5 million worth of counterfeit Chinese cigarettes in Brooklyn, N.Y. Media reports indicate illicit cigarette production has soared in China in recent years.

Ukraine is another source of ill-gotten smokes. According to the International Consortium of Investigative Journalists, the European country, currently involved in a dispute over Crimea with Russia, boasts the world's cheapest cigarettes at $1.05 per pack.

Cars and trucks filled with Ukrainian-made Marlboros and Viceroys get waved through border checkpoints by customs guards who seem more than eager to accommodate, for a price," the consortium says. "Loads also move by bus and train, bound for other European countries where high taxes make packs cost as much as $5 (Germany) or $10 (United Kingdom)."

  • Jonathan Berr

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