Cigarette Taxes Bad for Pennsylvania Businesses

LaFaive co-authors op-ed for philly.com

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center, recently co-authored an op-ed with Elizabeth Stelle, director of policy analysis at the Commonwealth Foundation, on the unintended consequences of high cigarette taxes.

Philly.com published their piece on October 14:

Just two years ago, Pennsylvania enjoyed a net cigarette smuggling rate of nearly zero, according to a statistical model designed by Michigan's Mackinac Center for Public Policy. That's the good news.

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The bad news is that significant illegal cigarette trafficking already exists in Pennsylvania. In fact, more than 14 percent of all cigarettes consumed in the Keystone State in 2013 arrived via "commercial" smuggling - that is, illegal, long-haul, large shipments.

These illegal cigarette imports were offset by "exports," as individuals from states like New York came to Pennsylvania to buy cigarettes for personal use elsewhere. Such exports made up 12.6 percent of all cigarettes purchased in the state. Helping this exodus was the fact that New York tolerates a modicum of cross-border shopping for cigarettes, so not every border crossing is deemed illegal.

Unfortunately, raising the state excise tax by 62.4 percent - or more - would spike smuggling rates from zero to 20.3 percent, according to Mackinac's model. In other words, approximately one of every five cigarettes consumed in the commonwealth would be illicit. Not surprisingly, the overwhelming majority of these cigarettes would come from distant, low-tax states like Virginia and the Carolinas.

Read the full op-ed at philly.com.


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