Cigarette Black Market Will Continue to Grow

Published August 27, 2008

It’s no surprise that illegal cigarette trafficking in Wisconsin has gone up since the $1 cigarette tax hike (August 21, “State busts of illegal cigarettes jump after tax increase”). Mounting cigarette taxes are creating similar black market demands for cheap cigarettes around the country.

New York City, for instance, recently saw its total (state and local) cigarette tax increase to $4.25, a cost so high that a de facto “prohibition era” environment has been created. Cigarette taxes are an inherently unreliable source of revenue, but now they are also serving as fuel for organized crime. Earlier this month federal officials busted a Virginia smuggling ring accused of shipping 200,000 packs of cigarettes worth nearly $4 million to New York over the past two years.

While Wisconsin might not be up to New York City levels yet, the increased demand for cheaper cigarettes is undoubtedly forcing smokers to look to alternative vendors. Tobacco tax revenue streams will surely dry up, leaving legislators to raise taxes elsewhere in order to fill the gap.

John Nothdurft ([email protected]) is budget and tax legislative specialist for The Heartland Institute.