Tobacco smuggling and taxation

One of the problems with the indisputable fact that Leftists literally fail at basic economics is that it leads to over-regulation and over-taxation, which leads to police focusing on superfluous issues instead of serious crimes.  Oh, and people getting killed while being arrested for these crimes.  If you raise taxes too much, Prohibition-type behaviors will always creep in.  Via Study: tobacco smuggling now a way of life in high tax states.


So what’s to be done?

Rampant smuggling — and its related ugliness — can be thwarted to a degree by cutting taxes, improving law enforcement operations, or both. We strongly suggest the former route. Higher excise taxes are the root of the problem so lower ones should be at the forefront of a solution.

Enough data has been collected by this point that we can construct a sort of Laffer Curve for the willingness of people to break the law and purchase black market cigarettes based on the tax rate. At a very low tax rate (close to other similarly base priced products) virtually no one is going to risk an encounter with the law to save a few cents and smuggling is not profitable. (And therefore doesn’t happen in measurable amounts.) And, of course, the revenue the state takes in is lower. But you can only increase the tax rate a certain amount before an increasing number of people are willing to take the risk and buy off the black market. By the time you jack up the taxes as high as New York has gone, more than half the cigarettes consumed are black market, you’re on the far side of the bell curve and the state is actually making less money than they would at a lower rate.

Meanwhile, more and more law enforcement resources have to be deployed to fight this “crime wave” rather than dealing with more serious social ills. This is self destructive behavior on the part of these tax happy states and it needs to be curbed.

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