Editorial: Crime, taxes can go together like love, marriage
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Champaign News-Gazette. April 15, 2023.
The fundamental rules of economics never change.
Smoking cigarettes is a filthy, unhealthy habit, but the taxes levied on their sale raise a ton of revenue.
Unfortunately, taxing it excessively also is a great way to encourage criminal behavior, somewhat akin to the experiment with Prohibition that put organized crime on the financial map. In that context, a recent report issued by the Tax Foundation should come as no surprise. It indicates that those who sell cigarettes and tobacco illegally are doing a great business.
The report estimated that Illinois “lost $334 million in tax revenue from cigarettes smuggled into the state” in 2020, up from roughly $200 million in 2019.
The point of the report is that high cigarette taxes encourage criminal behavior. While the numbers are revealing, the concept is hardly shocking. Cigarette smokers, like other consumers, want “the mostest for the leastest.”
That’s why Illinois’ overseers of the legal marijuana business are concerned that the dopers here will drive to Missouri for weed that is lower-priced because it is less heavily taxed. What’s to be done about this rampant illegality? Not much really. Law enforcement nibbled around the edges of the illegal trade, but it’s still flourishing.
In the meantime, Illinois’ high cigarette taxes still generate big money — nearly $788 million for the state alone in the 2021-22 fiscal year, according to Tobacco Free Kids. Illinois levies a state excise tax of $2.98 per pack. Throw in another $3 per pack tax in Cook County plus $1.18 per pack in Chicago, the total tax is $7.16 per pack in the city. Compare that to 17 cents per pack in Missouri, .995 cents in Indiana, $1.10 in Kentucky, $2.52 in Wisconsin and $2 in Michigan, and it’s easy to see why smugglers smuggle and Illinois smokers buy from them.
A Tax Foundation researcher estimated that 30% of “all cigarettes consumed” in Illinois “are not purchased in the state.” The numbers are even greater in New York, which has the highest estimated smuggling rate. The Tax Foundation said smuggled cigarettes account for 53% of the cigarettes consumed there. Those who follow this business say that some tobacco criminals are even more entrepreneurial. They produce “counterfeit” cigarettes that have the look and feel of American brands and sell them with counterfeit tax stamps, paying no tax whatsoever.
The Tax Foundation’s report will be accepted with a collective yawn because there’s nothing anyone is going to do about it. High-tax states aren’t going to lower their cigarette taxes to reduce the incentives for criminal activity because they want the revenue as well as the moral high ground of levying tax on a habit they disdain.
At the same time, low-tax states benefit from the smuggling because it generates more revenue for them. It’s an incongruous and perverse win-win situation, but one that shows how basic economic incentives work in the real world.
