Puff Talk on Taxes

Tobacco tax revenues

Looking both to raise revenues from cigarette sales and to discourage smoking, President Barack Obama wants to hike tobacco taxes. But jacking up taxes might not lead to the hoped-for bump in revenues: High tobacco taxes have already bred thriving black markets fully capable of evading additional levies.

A report by Michigan's Mackinac Center for Public Policy finds that tobacco taxes in much of the country are high enough to constitute "prohibition by price." The result is "a spike in smuggling-related criminal activity as smokers turn to illicit distribution channels." In New York, which has the highest cigarette taxes in the country, cigarettes smuggled from low-tax states or from outside the U.S. account for 60.9 percent of the market.

Officials in New York City, meanwhile, would like to reduce smoking by raising the legal age to buy cigarettes from 18 to 21. This approach has been tried without success with another regulated substance: alcohol. In the 1960s, states set their own drinking ages within a range from 18 to 21. Then the National Minimum Drinking Age Act, passed in 1984, denied a percentage of highway funds to states that failed to raise the age to 21; all complied. The result? The National Institute on Alcohol Abuse and Alcoholism reports: "In 2003, the average age of first use of alcohol was about 14, compared to about 17½ in 1965."