Unintended Consequences of Cigarette Tax Increases

We do not doubt that most lawmakers who push for cigarette tax hikes sincerely believe it is the best way to solve a particular policy problem. Some may be concerned about public health and wish to dissuade smokers from smoking. Others may want to balance a state budget without spending cuts.

But the effects of well-intentioned cigarette excise taxes are not completely positive. Negative consequences include smuggling, “channeling,” counterfeiting and violence. We explored these topics in detail in our earlier study,[*] but we discuss them again briefly below.

[*] For more on all of these topics see LaFaive, Fleenor, and Nesbit, “Cigarette Taxes and Smuggling,” (Mackinac Center for Public Policy, 2008), 37, 49, http://www.mackinac.org/archives/2008/s2008-12.pdf (accessed December 10, 2010).