LaFaive and Nesbit Op-ed Published in Lincoln Journal Star

Raising cigarette taxes would increase smuggling

An op-ed by the Mackinac Center’s Director of the Morey Fiscal Policy Initiative Michael LaFaive and Board of Scholars member Todd Nesbit was published this weekend by the Lincoln Journal Star in Nebraska.

The piece explained the unintended consequences that would come from raising cigarette taxes by more than 234 percent in The Cornhusker State, a proposal introduced by Sen. Mike Gloor. While Nebraska’s smuggling rate is quite low — 2.8 percent in 2013 — raising per-pack taxes from 64 cents to $2.14 would increase the smuggling rate to 32.3 percent, according to the analysis provided by LaFaive and Nesbit.

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From the op-ed:

Nebraska’s borders are touched by six other states, and all of them have lower excise tax rates on tobacco. On average, Nebraska’s neighbors impose a tax of only 96.5 cents, but Missouri imposes only a 17-cent tax. If Nebraska’s tax is raised, especially to over two dollars, people who live near a neighboring state would have every incentive to buy smokes there and save a buck. We have seen this play out elsewhere, and we are not the only scholars to report high rates of tax avoidance when it comes to cigarettes.

LaFaive and Nesbit went on to urge the state to consider cutting spending to negate the need for a cigarette tax increase.

Read the op-ed in its entirety at the Lincoln Journal Star.

View a PDF version of the op-ed here.

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