Analysis: Michigan’s Cigarette Smuggling Rate Falls Slightly; State Still in Top 10 Nationally

More than 27 percent of Michigan’s total cigarette consumption in 2012 was smuggled into the state, according to Center study

For Immediate Release
Monday, Feb. 17, 2014
Contact:
Ted O'Neil
Media Relations Manager
989-698-1914

MIDLAND — The Mackinac Center for Public Policy today released its latest estimates for cigarette smuggling rates in 47 of the 48 contiguous states for 2012, including Michigan, which saw its overall rate decrease from 29.3 percent to 27.6 percent. Michigan still has, however, the 10th highest smuggling rate in the nation.

“As long as the Great Lake State insists on maintaining high cigarette taxes, it will continue to suffer from illicit trafficking,” said Michael LaFaive, director of fiscal policy and co-author of the study. “The state has turned packs of cigarettes into little gold bars for the criminal class, who are only too happy to smuggle them for profit.”

This is the fourth set of smuggling rate estimates published by Mackinac Center analysts, with previous reports published in 2008, 2010 and 2013. The data means that for every 100 cigarettes consumed legally in Michigan, another 27 are smuggled in.

“Excise taxes do change consumption behavior, but they also increase tax avoidance so politicians often wrongly equate exact legal paid sales declines with people kicking the habit,” LaFaive added. “In reality the people are often just obtaining their smokes through different and often illegal channels.”

The top smuggling rates in the nation — according to the Mackinac Center’s new study — are New York (56.9 percent); Arizona (51.5 percent); New Mexico (48.1 percent); Washington state (47.8 percent); and Wisconsin (35 percent). This is the first appearance for Wisconsin in the top five. The Badger State was ranked as low as 18th in 2006.

“Our smuggling figures — and those of other scholars, too — still show a significant amount of cigarette smuggling in the United States, despite the best efforts of law enforcement to stem the problem,” said Todd Nesbit, senior lecturer in economics at Ohio State University and study co-author.

The top five out-bound smuggling states are New Hampshire (25 percent); Wyoming (22.3 percent); Idaho (21.3 percent); and Delaware (20.9 percent). This means that for every 100 cigarettes legally consumed in New Hampshire, 25 were smuggled to neighboring states, such as Massachusetts.

“The state of Massachusetts is wrestling with how to thwart a large smuggling problem and has formed an Illegal Tobacco Commission,” LaFaive said. “Its findings are expected to be released March 1.”

A 2013 study published by the journal Tobacco Control, titled “Cigarette Trafficking in Five Northeastern U.S. Cities,” found that almost 40 percent of discarded cigarette packages in Boston were found to have tax stamps from other jurisdictions.

The authors have cautioned lawmakers repeatedly that smuggling is not the only unintended consequence of imposing higher cigarette taxes. High rates also induce violence against people, police and property (including theft and truck hijackings) and the production of adulterated and dangerous products.

“Just last fall police in metro Detroit were forced to shoot at three men in a van attempting to run over an officer after they robbed a tobacco store,” said LaFaive. “The van had $10,000 worth of cigarettes in it.”

An essay detailing the authors 2012 findings can be found at www.mackinac.org/19725.

A chart detailing smuggling rates and ranks is posted at http://www.mackinac.org/media/images/2014/2014_LaFaive_Smuggling_Chart.jpg

 

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