Home  >  Northwest  >  Proposed cigarette tax increase in OR could light up black market

Proposed cigarette tax increase in OR could light up black market

By   /   March 19, 2013  /   4 Comments

.

SMOKE SCREENS: High cigarette taxes are creating a black market for smokes.

By Shelby Sebens | Northwest Watchdog

PORTLAND – A woman in Washington sells them out of the trunk of her car, and a man in Virginia admittedly hired a hitman over a disagreement related to the smuggled substance. Friends have friends send them across state lines, and a growing number of illegal shipments from Asia are making their way to the United States.

Narcotics? Military weapons? Nope.

We’re talking cigarettes. Smokes. The little white sticks so cool in old movies and advertisements but now widely acknowledged as poisonous, cancer causing agents and the ultimate deterrent to good health.

High cigarette taxes, intended to discourage the unhealthy habit and raise state revenue, have created a black market for cigarette sales across the country  — from people sneaking cartons from states with lower taxes to a crime-plagued industry fueled by an influx of international cigarettes costing as little as 20 cents per pack.

In Washington, 35 percent of the cigarettes in the state are contraband, meaning they either came from cheaper tax states such as Oregon or Idaho or from the international market, according to data from the Washington state Department of Revenue. Washington’s state tax on cigarettes is $3.02, Oregon’s is $1.18 and Idaho is 57 cents, according to data on tax rates from the Campaign for Tobacco Free Kids.

“It doesn’t take a rocket scientist to figure out that people in Washington are buying their cigarettes in Oregon,” Washington state Department of Revenue spokesman Mike Gowrylow said. “There’s a big incentive for people to make a run for the border and stock up on cigarettes.”

But the cigarette market in Oregon could be shifting as lawmakers consider raising the tax by $1. While sponsors of the proposed legislation say the goal is to get people to quit smoking, the move could have the unintended consequence of shifting Oregon to the other side of the black market, opening it up to more crime and other consequences of the underground cigarette trade.

“You get a lot of crime accompanying cigarette bootlegging,” said Patrick Fleenor, chief economist of Fiscal Economics Inc., who has written extensively on the economics of smoking. “It has similar effects to drug smuggling.”

A study by the Mackinac Center for Public Policy in January found cigarette taxes in some parts of the country were so high as to create a “prohibition by price,” which has led to a spike in smuggling-related criminal activity.

“The destructive consequences of rampant tobacco smuggling include the corruption of government officials, violence, theft, counterfeiting and dangerous, adulterated products,” authors of the study said.

But proponents of the tax increase say the benefits outweigh the risks.

Eric Stecker, assistant professor of medicine and cardiology at Oregon Health Science University, said his main focus is dissuading minors from taking up the habit. He said just making cigarettes illegal for people younger than 18 is not working, and children as young as 11 are lighting up. He said nearly 90 percent of adult smokers say they started before they turned 18.

“Kids have the most reduction in demand when the price goes up,” he said, adding they don’t have the disposable income or the wherewithal to hop the border or to order them from smugglers.

He also argues the higher tax is working to curb smoking. The Wisconsin Quit Line, for example, received a record-breaking 20,000 calls in the first two months after its $1 per cigarette pack increase. It typically gets 9,000 calls per year.

“Everyone agrees kids should not become addicted. Raising the price of cigarettes is the most economically and bureaucratically efficient program that is effective in preventing kids from starting to smoke,” Stecker said. “I would expect there could be a lot of black market activity without significantly eroding the public health benefits from a higher price of cigarettes.”

But Mackinac found the black market grows as taxes rise. New York had the highest number of smuggled cigarettes in 2011 — about 61 percent of the total market. New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.

And a Chicago alderman has actually proposed decreasing cigarette taxes because of concerns over illicit smuggling.

Oregon for years has had a relatively low tax rate — $1.18 — which is lower than the national average —$1.48. Considering the rise of the international black market, it’s still a problem, Fleenor said.

“It would only be exacerbated by an additional tax,” he added.

When Washington state increased its tax on cigarettes by $1 in 2010, sales of taxable cigarettes increased in Oregon from $171 million to about $180 million. Compare that to Washington’s sales that same year, which were at $146 million despite having a larger population than Oregon, Gowrylow said.

So, what might happen in Idaho should Oregon decide to raise taxes on cigarettes?

Contact Shelby Sebens at Shelby@NorthwestWatchdog.org, and follow her on Twitter @ShelbySebens. For more Northwest Watchdog updates, visit NWWatchdog on Facebook and Twitter.

Please, feel free to "steal our stuff"! Just remember to credit Watchdog.org. Find out more

Shelby Sebens

  • Sheena

    Darn, I feel like the idea is good, but didn’t realize the black market was so big. I know that when I lived in NC, one of my co-workers would ship her dad cartons of cigarettes bc he lived in NY where they were so expensive. Her reasoning was “He’s 70 years old, he’s not going to quit, he might as well save some of his money”. I do think the high tax would discourage kids from buying them though, and most kids won’t be looking for a black market, at least I don’t think… :)

  • Mike

    This is a clear argument for higher cigarette taxes in Oregon. Your points show that raising Oregon’s tax to at least the same rate as Washington and California would discourage black market cigarette sales.

  • Jon Krueger

    Money that “Mackinac Center for Public Policy’ has taken from the tobacco industry, a partial list:

    1995 http://legacy.library.ucsf.edu/tid/xpy36c00

    1996 http://legacy.library.ucsf.edu/tid/jhg97g00

    1997 http://legacy.library.ucsf.edu/tid/qwi82c00

    http://legacy.library.ucsf.edu/tid/avj37c00

    In an amazing coincidence, the “Mackinac Center for Public Policy”
    spews tobacco industry PR: keep cigs cheap, or gosh, bad bad
    smuggling oh no

  • http://www.best4ecigs.com/e-cigarette-starter-kits-s/1822.htm Rihana Clein

    Yes, it was supposed that high tax on cigarette will help to diminish the use of tobacco, but it become the reason for black market. Smokers should leave this habit of smoking as soon as possible, before it becomes too late. Flavored
    e cigarette liquid
    contains very less amount of nicotine that is not
    dangerous for our health, so it is best alternative of harmful tobacco.