Gov. Gretchen Whitmer proposed a new budget Feb. 18 with $900 million in tax increases built in, including a 50% increase in Michigan’s excise tax on cigarettes. Her proposal, if adopted, would raise the tax from $2 per pack to $3 per pack. This tax hike, and others on nicotine users, would also raise Michiganders’ rate of tax evasion and avoidance, or what we call, “smuggling.”

Smuggling is a side effect of imposing high taxes on popular products. We estimate that if legislators agree to the increase, Michigan’s smuggling rate will leap to 22% of total consumption, up from 14%. Half of the smuggling will be attributed to consumers crossing into a lower-taxed jurisdiction to buy less expensive cigarettes for personal consumption. The remainder will be trafficked in from farther away — as far away as Asia — and in large quantities.

We have studied this issue for decades. In 2008 we built a statistical model to estimate cigarette smuggling across state and national borders. The model compares estimated cigarette consumption with legal sales; the gap between the two reflects illicit activity. We update these estimates annually.

Smuggling is not the only negative consequence of tax hikes. We have, over the years, pointed to Michigan-specific brazen thefts such as smash-and-grabs, hijackings, and shootings against people and police, not to mention public corruption. Michigan should avoid higher taxes on these products and save itself from the lawlessness that comes with them.

The Great Lake State struggles to keep narcotics and other contraband — including tobacco — out of the prisons it owns and operates. And last year a corrections officer at the federal prison in Milan, Michigan, was busted smuggling tobacco pouches to an inmate. The inmate had intended to resell them for profit. Also last year, an attorney got caught trying to smuggle drugs into the state prison in St. Louis. In 2017 a drone operator attempted to fly tobacco, marijuana and cellphones to an inmate in the state prison in Ionia. In 2011 a guard got caught trying to smuggle tobacco into the state’s Newberry prison.

We know about these cases because the offenders were caught. Imagine how much contraband gets through undetected. Lawmakers cannot keep tobacco out of prisons where it is banned, and corrections officers constantly monitor inmates. They will not keep another 30 million packs of cigarettes — a number our model predicts — from being smuggled across our porous borders from no-tax or low-tax sources.

The cigarette tax hike is not the only tax hike nicotine users face in the governor’s budget proposal. There are proposals to raise the tax on the wholesale price of other tobacco products (pipe, moist chewing tobacco and snuff) from 32% to 57%. Whitmer also calls for imposing a new tax on vaping products and electronic cigarettes: 57% of the wholesale price. These measures would only add greater incentive for smuggling into Michigan.

Last September the Food and Drug Administration and Customs and Border Protection announced they had seized 4.7 million units of unauthorized e-cigarettes as part of a Chicago-area operation. The shipments included “an apparent attempt to evade duties and the review of products for import safety concerns,” the announcement read. Michigan is only a short drive away.

The governor’s proposed vape tax raises a separate policy question. Some public health authorities view vaping as a harm-reduction alternative to combustible cigarettes. The Royal College of Physicians in the United Kingdom, for example, has said the risks of vaping are “unlikely to exceed 5% of the harm from smoking tobacco.” A new, heavy tax on vaping products could discourage smokers from switching to lower-risk alternatives and make public health worse.

A policy that pushes consumers toward illicit markets while potentially discouraging harm reduction deserves careful scrutiny. Lawmakers weighing higher tobacco and nicotine taxes should consider not only projected revenue but also its unintended consequences and the realities of enforcement. Michigan can and should pursue public health goals without widening the state’s illicit market.

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