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Date: November 25, 2024 Mon
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Results for cigarette smuggling (u.s.)
3 results foundAuthor: LaFaive, Michael Title: Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review Summary: States usually cite two major reasons for hiking their cigarette taxes: to decrease smoking, and to increase state tax revenue. Although these two goals can conflict, the “inelastic” nature of the cigarette market often allows policymakers to achieve both aims at once, with modest smoking reductions accompanying net increases in tax revenue. This outcome may become increasingly difficult to achieve, however. Many states have raised their cigarette taxes significantly in recent years. These increases have likely furthered the growth of two types of cigarette smuggling: “casual” smuggling, in which individual consumers save money by buying their cigarettes in low-tax states or countries, and “commercial” smuggling, in which larger-scale operators buy cigarettes in bulk in a low-tax area and sell them tax-free in hightax areas. This smuggling undermines both the revenue and health goals of higher cigarette taxes, while producing unintended consequences for individual states and American society as a whole. In this study, the authors consider cigarette smuggling from two angles. First, they employ a statistical model to estimate the degree to which cigarette smuggling occurs in 47 of the 48 contiguous U.S. states. Second, they review the historical experiences of three states — Michigan, New Jersey and California — known to have problems with cigarette smuggling. The authors’ statistical model compares legal, per-capita sales of cigarettes from 1990 through 2006 with survey data from the Centers for Disease Control and Prevention on the percentage of smokers in each state. Apparent discrepancies between legal sales and smoking rates — for instance, relatively low sales in a heavy smoking state — are used to estimate smuggling import and export rates between states, including any imports from, or exports to, Canada and Mexico. The model also distinguishes between casual and commercial smuggling. From 1990 to 2006, the authors estimate that the states with the top five average smuggling import rates as a percentage of their total estimated in-state cigarette consumption, including both legally and illegally purchased cigarettes, were California (24.5 percent of the state’s total cigarette consumption), New York (20.9 percent), Arizona (20.6 percent), Washington state (20.1 percent) and Michigan (16.0 percent). Commercial smuggling import rates were highest in New Jersey (13.8 percent), Massachusetts (12.7 percent) and Rhode Island (12.7 percent). Casual smuggling import rates were highest in New York (9.9 percent), Washington (8.9 percent) and Michigan (6.0 percent). The authors estimate that the states with the highest average smuggling export rates from 1990 to 2006 (excluding North Carolina) were Delaware, Virginia and New Hampshire, where the volumes of the smuggling export markets were equal to 29.4 percent, 20.8 percent and 17.2 percent respectively of each state’s total estimated in-state cigarette consumption. Delaware’s high export rate is driven by an estimated casual smuggling volume equal to 34.8 percent of the state’s estimated total cigarette consumption, a figure that is partially offset by an estimated commercial smuggling import rate of 5.0 percent. Mexico is also estimated to have played a significant role as a source of smuggled cigarettes to California, Texas, New Mexico and Arizona, exporting quantities that represented 8 percent to 10 percent of each state’s estimated total cigarette consumption. The authors’ 2006 smuggling estimates were much higher, with rapid cigarette tax increases since 2001 fueling greater tax-induced smuggling activity. In 2006, the states with the highest estimated cigarette smuggling import rates were Rhode Island (45.7 percent), New Mexico (42.4 percent) and the state of Washington (42.3 percent). All three states have raised their cigarette taxes significantly since 2003. The authors estimate that in 2006, no state had a higher export rate than Delaware, where outbound cigarette smuggling — fueled by casual smuggling — reached 82.8 percent of the state’s estimated in-state cigarette consumption. (State smuggling estimates appear in Graphic 6 and Graphic 7.) The authors’ review of Michigan’s, New Jersey’s and California’s cigarette smuggling experiences suggest that cigarette smugglers can realize large profits: tens of thousands of dollars for a single vanload of cigarettes, and hundreds of thousands of dollars for a single truckload. These sums represent a loss in estimated tax revenues to a state’s treasury, but they have produced other unintended consequences, including a variety of crimes: • financing a terrorist organization; • thefts of untaxed cigarettes, including truck hijackings; • thefts of state tax stamps; • counterfeiting of tax stamps; • property damage; • counterfeiting of name-brand cigarettes, which are replaced with adulterated products, including counterfeit cigarettes from China; and • violence against residents and police officers. These societal costs are frequently borne by innocent people. This, together with the authors’ cigarette smuggling estimates, suggests that state policymakers should reassess the value of cigarette taxes as a revenue and public health tool. States with high cigarette taxes, for instance, may want to consider reducing those taxes to reduce the smuggling incentive and the attendant ancillary crime. States with lower cigarette tax rates should be cautious about increasing the taxes, especially with an apparent growth in international smuggling. State policymakers should also recall that cigarette taxes are regressive, and that cigarette tax revenues are best spent on programs that mitigate the cost of smoking, not on general programs that would be more properly financed by the general taxpayer. Details: Midland, MI: Mackinac Center for Public Policy, 2008. 99p. Source: Internet Resource: Accessed May 9, 2012 at: http://www.mackinac.org/archives/2008/s2008-12.pdf Year: 2008 Country: United States URL: http://www.mackinac.org/archives/2008/s2008-12.pdf Shelf Number: 125229 Keywords: Cigarette Smuggling (U.S.)Taxation |
Author: LaFaive, Michael Title: Cigarette Taxes and Smuggling 2010: An Update of Earlier Research Summary: Between January 2007 and 2009, 21 of the 48 contiguous states — including tobacco state North Carolina — raised their cigarette taxes, producing a total of 27 tax hikes. In 2010, tobacco state South Carolina and five other states did the same. This study updates the Mackinac Center’s 2008 publication “Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review” to reflect state and federal cigarette tax hikes through fiscal 2009. The original study used data through fiscal 2006. Our new estimates indicate that in 2009, the state of Michigan ranked 10th in the nation in smuggled cigarettes as a percentage of total in-state cigarette consumption — 26 percent. The five smuggling destination states with the highest cigarette smuggling rates were Arizona (51.8 percent of the state’s total consumption); New York (47.5 percent); Rhode Island (40.5 percent); New Mexico (37.2 percent); and California (36.3 percent). According to our calculations, Arizona’s inbound smuggling rate was not in the top five in 2006, yet we estimate that Arizona now has the nation’s highest inbound cigarette smuggling rate, with over half of all cigarette consumption coming from smuggled sources. This is probably a function of the state’s 2006 excise tax hike, the 2009 federal excise tax hike and Arizona’s proximity to Mexico. The study also breaks smuggling rates into two primary types of smuggling: “casual” and “commercial.” Casual smuggling typically involves individuals crossing borders to obtain their cigarettes for personal use. It may also involve purchases made over the Internet. Commercial smuggling involves larger, typically long-haul efforts, such as transporting cigarettes from North Carolina (a typical source state) to Michigan or elsewhere. In the casual smuggling category, Michigan’s smuggling rate ranks 5th in the nation, at 11.6 percent of total in-state cigarette consumption. Only New York (19.9 percent), Rhode Island (18.2 percent), Washington (14.5 percent) and Montana (13.2 percent) residents crossed into neighboring jurisdictions for lower-taxed cigarettes more often than those of the Great Lakes State. Remarkably, New York state earned the number one spot even before hiking state taxes by $1.60 per pack in 2010. Anecdotal evidence suggests that this recent hike has been a boon to Pennsylvania retailers just across the Empire State’s border. The states with the top inbound commercial cigarette smuggling rates are New Jersey (29.1 percent); New York (28.5 percent); Vermont (24.2 percent); Massachusetts (23.3 percent); and Connecticut (20.9 percent). Five smuggling destination states moved up by double digits between 2006 and 2009 in our state rankings of net smuggling rates: Texas, from 16th to 6th; Mississippi, from 37th to 22nd; South Dakota, from 28th to 12th; Maryland, from 24th to 9th; and Iowa, from 33rd to 15th. These large smuggling rate increases relative to those of other states can likely be attributed to the five states’ substantial state excise tax increases over the past three years. Texas increased its per-pack cigarette tax from 41 cents to 141 cents in 2007; Mississippi, from 18 cents to 68 cents in 2009; South Dakota, from 53 cents to 153 cents in 2007; Maryland, from 100 cents to 200 cents in 2008; and Iowa, from 36 cents to 136 cents in 2007. Despite the notable cigarette tax hikes in recent years, other proposals are being floated around the country. In 2009, Michigan Gov. Jennifer Granholm suggested raising cigarette taxes to $2.25 per pack, up from $2.00 per pack. That proposal never came to fruition, but we estimate that had it become law, illicit cigarette trafficking would have leapt to 28.3 percent of Michigan’s total cigarette consumption. In Illinois, according to our calculations, a proposed $1.00-perpack cigarette tax hike would cause cigarette smuggling to increase from a modest 5.9 percent of total in-state consumption to 24.3 percent. Smuggling is not the only unintended consequence of high cigarette taxes. Taxinduced smuggling can also lead to violence against people, police and property, and encourage sizable and brazen theft. The authors recommend reducing state and local cigarette taxes as a way to thwart smuggling and other unintended consequences. Details: Midland, MI: Mackinac Center for Public Policy, 2010. 40p. Source: Internet Resource: Accessed May 10, 2012 at: http://www.mackinac.org/archives/2010/2010-09TobaccoSmugglingFINALweb2.pdf Year: 2010 Country: United States URL: http://www.mackinac.org/archives/2010/2010-09TobaccoSmugglingFINALweb2.pdf Shelf Number: 125232 Keywords: Cigarette Smuggling (U.S.)Illicit TobaccoTax Revenues |
Author: U.S. Department of Justice, Office of the Inspector General, Evaluation and Inspections Division Title: The Bureau of Alcohol, Tobacco, Firearms and Explosives’ Efforts to Prevent the Diversion of Tobacco Summary: The U.S. Department of Justice’s (Department) Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is charged with investigating the diversion of alcohol and tobacco products from the legal distribution system to evade payment of federal and state excise taxes. This diversion can include several different types of criminal behavior, such as smuggling alcohol and tobacco products from a low tax state to sell in a high tax state, smuggling across international borders, avoiding taxes by pretending to export products but illegally selling them in the United States, producing counterfeit products, selling products without tax stamps or with counterfeit stamps, and selling products illegally over the Internet. In the United States, federal and state governments estimate that tobacco diversion costs over $5 billion in revenue from unpaid excise taxes annually. The primary reason that tobacco diversion is profitable in the United States is the disparity among the states’ excise taxes. For example, because South Carolina has the lowest state excise tax at 7 cents per pack of cigarettes and Rhode Island has the highest at $3.46 per pack, South Carolina is a source of less expensive cigarettes for criminals to buy and then resell at a profit in Rhode Island. While most cities or counties do not impose tobacco taxes, New York City and Chicago do, and those cities have the highest priced cigarettes in the country because of the additional city and county taxes. New York City charges $1.50 tax per pack in addition to a New York State tax of $2.75, resulting in $4.25 added to the cost of a pack of cigarettes. In Chicago, the combination of a state tax (98 cents), county tax ($2), and city tax (68 cents) adds a total of $3.66 to the cost of each pack of cigarettes. In addition to state and local taxes, federal taxes add another $1.50 to a pack of cigarettes. As of July 2009, the average retail price per pack of cigarettes across all states was $5.72, with prices ranging from $4.01 to $7.55 due to variations in state taxes and retail business practices. The incentive to profit by evading payment of taxes rises with each tax rate hike imposed by federal, state, and local governments. High state tobacco excise taxes make it profitable for individuals and groups to risk crossing state borders to smuggle and engage in other illegal sales activities. For example, solely by purchasing cigarettes in a low tax state and reselling them in a high tax state a seller can make a profit up to $23,000 on 10 cases of cigarettes (a car load), up to $90,000 on 50 cases (a van load), and up to $465,000 for 200 cases (a small truck load). The diversion of tobacco can occur anywhere on the production or supply chain – manufacturers, wholesalers, and retail outlets have been involved in diverting tobacco products. Counterfeit and authentic contraband tobacco products are available through illegal “black market” sources, through the Internet, and at legally operated retail locations. According to ATF, since 2000, organized criminal groups have become increasingly active in the diversion of tobacco products, particularly cigarettes, and are running larger scale and more complicated diversion schemes. The schemes have included the use of counterfeit tax stamps, counterfeit cigarettes, shell companies, money laundering, and fraudulent tobacco rebate forms. According to ATF, alcohol diversion that rises to the level of a federal offense is not as prevalent as tobacco diversion because alcohol is harder to transport in larger quantities than tobacco and the manufacturing of illegal alcohol is limited to specific geographic areas of the country. Consequently, alcohol diversion is generally investigated by state tax or law enforcement entities instead of ATF. Therefore, this report focuses predominantly on tobacco diversion. Details: Washington, DC: U.S. Department of Justice, 2009. 57p. Source: Internet Resource: Report Number I-2009-005; Accessed June 4, 2013 at: http://www.justice.gov/oig/reports/ATF/e0905.pdf Year: 2009 Country: United States URL: http://www.justice.gov/oig/reports/ATF/e0905.pdf Shelf Number: 128932 Keywords: Cigarette Smuggling (U.S.)Organized CrimeTax Avoidance |