Since 2008 the Mackinac Center for Public Policy — and more recently in conjunction with the Washington, D.C.-based Tax Foundation — has worked to estimate the degree to which cigarettes are smuggled into and out of American states. Our research, and that of other scholars too, suggests that smuggling is a rampant problem, particularly in states with high cigarette excise taxes.
Unintended and unforeseen consequences are a frequent problem in public policy. Few politicians realize when they vote for higher excise taxes that doing so may dramatically increase cigarette-related crime, such as smuggling. These crimes not only deprive local and state governments of tax revenues, they also tend to descend into violence, which produces all sorts of unnecessary damage. Policymakers should take these realities into consideration when contemplating how much to tax cigarettes.
This report analyzes the relationship between cigarette tax rates and cigarette smuggling rates. It relies on the same statistical model used in our previous studies, but uses the latest available data from 2014. New York State once again claims the highest smuggling rate in the nation. In fact, according to our analysis, New Yorkers consume more smuggled cigarettes than they do legally taxed ones. New York state has the highest excise tax rate on cigarettes in the country at $4.35 per pack and New York City adds another $1.50 tax. Arizona, Washington state, New Mexico and Minnesota round out the top five states for percentage of in-bound smuggling. Michigan ranks 12th, down two positions.
Massachusetts distinguished itself between our 2015 and 2016 analyses for its change in rank among smuggling states. It leapt 15 positions from 22nd in our rankings to 7th. Minnesota increased by 11 spots from 16th to 5th and we expect to see the North Star State continue to climb due to a state law that ties automatic cigarette tax increases to inflation.
The top cigarette export state was New Hampshire. For every 100 cigarettes consumed there, an additional 81 were smuggled out and likely ended up being consumed by smokers in neighboring states. Idaho, Virginia, Delaware and Wyoming follow New Hampshire with the highest export smuggling rates.
In addition to providing the details about this analysis of new data, this study also provides a thorough review of the literature on this topic. There has been a lot of research conducted on this question, by academics and published in scholarly journals, but also by government agencies and other think tanks. The research that has been published over the past 11 years on cigarette smuggling is described in this study.
These studies use different methodologies and datasets and come to somewhat different conclusions about the specific smuggling rates of jurisdictions in the U.S. But almost all suggest that cigarette smuggling is a significant problem, generally aligning with our findings.