Cigarette Taxes Encourage Smuggling

February 10, 2015 Taxation in USA

WASHINGTON D.C. – Cigarette smuggling increases when states enact disproportionately high hikes to the rate of tobacco taxes, with Illinois showing a 20-fold jump in smuggling due to such increases.

In a new report issued on February 9th the US-based non-government organization the Tax Foundation claimed that increases in the rate of taxes on the sale of tobacco has resulted in rises in the amount of cigarettes being smuggled between different states.

The experts of the Tax Foundation suggested that the occurrence of smuggling of tobacco is driven by the growing disparities in the taxation of cigarettes between various states, with the growing gap between the highest taxing states and the lowest taxing states presenting a greater opportunity for illegitimate profits.

It was specifically noted that in 2012 approximately 1.1 percent of cigarettes in Illinois had been smuggled in, however, after a significant rise in the rate of tobacco taxes, the rate of smuggling had jumped to 20.9 percent within one year.

Explaining the unintended impacts of the tax hikes on smuggling rates, the Tax Foundation Economist and Manager of State Projects Scott Drenkard said “…high tax rates on cigarettes have led to unreliable revenue and increased criminal activity. Policymakers seeking additional revenue would be better off choosing more stable sources that don’t incentivize black market behavior.”

Photo By: Marius Mellebye / 276ccm