Cigarette Tax Hikes Drive Smuggling, Trim Revenue

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Over the past decade, almost every state has raised cigarette taxes, sometimes multiple times. The health benefits are undeniable, but the benefits to states' revenues are not as clear-cut.

In 2010, states with high tobacco taxes lost about $5 billion in revenue because of cigarette smuggling, according to the Bureau of Alcohol Tobacco Firearms and Explosives. Experts say the number is climbing.

Most of the black market in cigarettes is between low-tax states and high-tax states: Smugglers purchase cigarettes in a low-tax state and transport them to a high-tax state. Then they sell them at a discount to smokers while still pocketing a healthy profit. Because there is such a wide disparity among states' cigarette taxes, the price differential is well worth the risk of smuggling, according to law enforcement officials.

Minnesota is the latest state to hike cigarette taxes. The legislature this year more than doubled the tax — from $1.23 a pack to $2.83. Massachusetts is also in the throes of debating a cigarette tax hike that would increase state taxes by another dollar, to $3.51 a pack.