High Cigarette Taxes Bring Unintended Consequences

Published March 1, 2009

Cigarette smuggling is not the only issue requiring consideration when studying tobacco tax hikes. States that dramatically hike excise taxes create numerous unintended negative consequences. A few examples follow.

* Financing terrorism. Profits from cigarette smuggling have been used to finance Hezbollah in Lebanon. One smuggler involved in the scheme was said to have charged a 25 cent “resistance” tax on his smuggled cigarettes, the profits from which he funneled overseas.

* Hijacking. Truckloads of cigarettes have been hijacked from their drivers. Truck hijackings can be especially profitable for thieves because the cigarettes may already carry the state tax stamp indicia showing taxes have been paid on the product.

* Counterfeiting. Criminals are making fake tax stamps to suggest smuggled cigarettes are legitimate. They also are making non-branded cigarettes that look like brand-name smokes but are frequently adulterated with sawdust and other dangerous filler.

* Assault. One Detroit-based “cash and carry” customer was victimized by an armed robbery after buying cigarettes from a local underground wholesaler. He lost his automobile, cigarettes, and a kidney after being shot three times.

* Violence against property. Thieves with sledgehammers broke through the concrete wall of the building owned by the wholesaler mentioned above, to steal tobacco products.

— Michael LaFaive