Taxing Smokes Puffs Up Mob?

Mobster featured in Lorillard tobacco ad linking cigarette taxes to mob-run smuggling operations
The Lorillard Tobacco Co. is hoping people are more afraid of mobsters than they are of lung cancer.

The nation's fourth-largest tobacco company, maker of Newports and Kents, launched an advertising campaign in three states this week that claims higher cigarette taxes encourage organized crime.

One ad featured a picture of a scowling, beefy man wearing a pinstriped suit and a pinky ring, posing next to a black sedan and a suitcase stuffed with cash.

"The mob, smugglers, and other street criminals are making a fortune selling illegal cigarettes while legitimate small businesses are forced to cut jobs," the ad reads.

The newspaper, radio and billboard ads began appearing Wednesday and are scheduled to run for a month in Pennsylvania, New Jersey and Delaware — three of at least 29 states where lawmakers have suggested raising cigarette taxes.

The ads specifically take aim at New York City's taxes, saying they created a market for smugglers who make knockoffs of name brands or buy cartons in other states and resell them.

William V. Corr, executive director of the Campaign for Tobacco Free Kids, called the ads "deceptive and desperate."

"Lorillard is trying to divert attention from what they really want, which is lower-cost cigarettes," he said.

John Kirkwood, chief executive of the American Lung Association, acknowledged cigarette smuggling is a problem, but said eliminating tobacco taxes isn't the way to deal with it.

"Maybe we shouldn't have laws against drug use either, because people are going to go out and smuggle drugs?" he said. "The reasoning is fallacious."

Few dispute that cigarette smuggling has been a mainstay of organized crime.

Federal agents in April announced the breakup of smuggling rings that made $20 million buying cigarettes in states like Virginia, where the state tax on a pack of cigarettes is 2.5 cents, and shipping them to places like New York, where state and local taxes are about $3 per pack.

In another bust, authorities charged a group with buying cigarettes in North Carolina and trucking them to Michigan. Investigators said proceeds went to finance the militant group Hezbollah in Lebanon.

Anti-smoking organizations claim tobacco companies secretly encourage smuggling by oversupplying wholesalers in low-tax states, knowing tons of cigarettes will be bought for sale elsewhere.

In February, Canadian authorities charged tobacco manufacturer JTI-Macdonald Corp. with smuggling cigarettes to evade $805 million in duties and taxes. The company denied the charge.

Steve Watson, spokesman for Greensboro, N.C.-based Lorillard, said higher cigarette taxes don't alter people's smoking habits. He said merchants and smokers simply turn to illegal sources when prices get too high.

Anti-smoking advocates dispute that claim. The Campaign for Tobacco Free Kids quotes internal cigarette company documents that acknowledge a link between increased taxes and decreased smoking.

In its 2002 annual report, Loews Corporation, the parent company of Lorillard, states: "Lorillard believes that increases in excise and similar taxes have had an adverse impact on sales of cigarettes and that any future increases, the extent of which cannot be predicted, could result in further volume declines for the cigarette industry, including Lorillard, and an increased sales shift toward lower priced discount cigarettes rather than premium brands."

However, some studies do suggest that increasing cigarette taxes increases sales of other types of tobacco, as customers move from smoking to chewing or dipping.

In January, Delaware's governor proposed doubling the state's cigarette tax from 24 cents to 50 cents a pack. New Jersey recently raised taxes by 70 cents and has proposed another increase to $1.90 per pack.

Pennsylvania more than tripled the cigarette tax last year, to $1 per pack, and state officials have discussed raising it again to help doctors defray insurance costs.

Tobacco companies have employed unorthodox marketing campaigns in the past. In one famous example, the Philippines' Fortune Tobacco company – a licensee of Philip Morris — reportedly used the Virgin Mary in ads promoting particular brands.