Monday, February 28, 2011

Creating opportunities for crime

CNBC reports that the widely differing cigarette taxes levied across the United States have given rise to a highly lucrative criminal enterprise.

There's no better example of the law of unintended consequences than cigarette taxes in the United States.

Each state sets its own rate, and the disparity is huge. Missouri's state cigarette tax is 17 cents. It's $4.35 in New York.

What's the unintended consequence? Crime.

According to the Bureau of Alcohol, Tobacco and Firearms, the United States loses $5 billion in tax revenue every year from the trafficking of illegal cigarettes. Worldwide, it's a $100 billion problem, and it's the No. 1 economic crime in Europe.

"We liken it to the new prohibition era," Special Agent Ashan Benedict told CNBC for the upcoming documentary Cigarette Wars. "We haven't outlawed cigarettes yet, but it's taxed to the point where the criminals know they make a lot of money trafficking."

The crime has several variations, but it's extremely simple. The most common way: Buy cigarettes in a low-tax state and sell them in a high tax state. The tax disparity is straight profit.

"A carton of cigarettes in Virginia is $30," Benedict said. "In New York City, it can be $90 or more. That's just one carton.

"You start dealing with hundreds and hundreds of cartons, and folks are making more money selling cigarettes up north than drugs."

One truckload can translate into $1 million in cash.

There's more at the link.

I knew cigarette smuggling existed, of course, but I hadn't realized just how much money could be made in this racket! It's probably more profitable than drugs, at least in some areas. So, as well as contributing to serious health problems, cigarettes contribute to a serious crime problem too!

I wonder what would happen to state revenues if they agreed on a common tax rate for cigarettes, and implemented it across the nation, so that every state derived the same revenue from every pack sold? I suspect the gross 'take' would go up quite significantly, because the criminal trafficking of cigarettes would be effectively eliminated.

Makes you think, doesn't it?



Erik said...

Some years ago the politicians in Sweden raised tobaccoe taxes. The result was that smuggling became very profitable, and commonly accepted.
Criminals built up an infrastructure to handle all the smuggling of cigarettes, which gave them huge profits.

Some time later the politicians realized that the only thing to come out of the high taxes was organized crime, turf wars and less tax revenue (most people bought smuggled cigarettes), and they lowered the rates. But at that time the infrastructure was allready there, so the organized crime that had been created simply switched to other ways of making profits.

The raised taxes brought serious organized crime to Sweden, including turf wars.

perlhaqr said...

If it's a crime to avoid being mugged, even by a guy wearing an official clown suit, then call me a criminal.

Newbius said...

Using the known propensity of GOV to want to maximize the penalty, it is easy to presume that making the taxes uniform (at New York's rate) will result in more theft. Tobacco theft in Virginia is already a problem, with the Russian gangs from New York and New Jersey being the most common arrestees.

Crucis said...

I quit smoking a few decades ago but I still notice things like prices and who is buying what. It's very common to see cars with Kansas, Iowa, Illinois plated parked at small country stores with names like "Smokes." A few weeks ago I saw a woman loading her Kansas licensed car at one such place with two LARGE shopping bags filled with cartons of cigarettes. I doubt she was stocking up for the winter.

George in AZ said...

Peter, I'm surprised! You allege if a common tax rate were agreed upon, criminal trafficking would be eliminated. What about smuggling from offshore, Mexico, etc.? Just curious.

Jim said...

George - You'd a lot more visible trying to get something across the (national) border than you would by having out-of-state license plates... There would still be a profit motive I'm sure but smokes are terribly bulky to smuggle, particularly when compared to coke.

If smokes cost the same at the corner as they do across state lines, there wouldn't be any real motive to move them across state lines.


Cybrludite said...

Five an' twenty ponies trotting in the dark.
Brandy for the parson, 'baccy for the clerk.
Thems that ask no questions isn't told a lie.
Watch the walls, my darling, as the gentlemen go by.

Rudyard Kipling