It may be obvious that high taxes on goods like cigarettes create a massive incentive for a black market in which buyers can get what they want at a price that's not jacked up by the state's take and sellers can profit by catering to that demand. That's obvious to you and me. But to politicians and lots of journalists, that chapter of Econ 101 seems to have been ripped out of the textbook. So it's refreshing to see a venue like the BBC—the UK government's own "independent" mouthpiece—acknowledge that tobacco smuggling isn't just an inexplicable manifestation of the darkness in humanity's heart, but a logical outcome of politicians raising taxes too damned high.
We look at the rising tide of global contraband—specifically, the smuggling of tobacco. It's estimated some 50 billion dollars of the stuff is carried across borders and sold, tax-free, every year around the world. That is a cost to governments and it also poses a health risk to consumers. But at what point do you stop blaming the criminals and the law-enforcers, and when do you start blaming governments themselves for imposing such high taxes on tobacco?
The full audio report can be heard at the link above. It notes that, because of taxes, cigarettes in Britain can now be wildly more expensive than smokes in developing countries, crating an easy source for smuggled product. The 2012 chart from the World Health Organization, below, shows that taxes represent about 80 percent of the price of cigarettes in the UK and across Europe. Drug smuggling rings, not surprisingly, have moved into the tobacco market.
Listen as Arthur Laffer tells the BBC correspondent that taxes are not a magic means of discouraging behavior you don't like, because people are stubborn creatures who will find ways to do what they want to do. He's especially interesting explaining that uniform tobacco taxes across the world won't solve anything, because then you'll just fuel illicit manufacture of cigarettes—something that should be easy to extrapolate from the whole drug smuggling ring thing.