There are some pretty big underground cigarette markets in the U.S.
Smuggled cigarettes make up substantial portions of cigarette consumption in many states, and greater than 20% of consumption in 15 states, according to the Tax Foundation.
But no one beats New York.
Smuggled cigarettes made up 58% of the total cigarette market in the Empire State in 2013, an increase from the previous year’s data.
Interestingly, New York also happens to have the highest state cigarette tax at $US4.35 per pack. (Excluding the additional $US1.50 tax per pack in New York City.)
In fact, since 2006, smuggling of cigarettes into New York spiked by 58%, following a whopping 190% increase in the tax rate, according to research by the Tax Foundation.
But it’s not just New York. There’s actually a strong correlation between a higher cigarette excise tax rate and cigarette smuggling as a percentage of consumption across US states — which you can see in the second chart below.
In other words, the higher the excise tax, the bigger the underground cigarette market.
“Public policies often have unintended consequences that outweigh their benefits. One consequence of high state cigarette tax rates has been increased smuggling as criminals procure discounted packs from low-tax states to sell to high-tax states,” write Tax Foundation’s Scott Drenkard and Joseph Henchman.
“Growing cigarette tax differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise,” they added.
Check out the whole study at Tax Foundation.
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