Cigarettes

California's Gift to Its Neighbors: Expanded Cigarette Smuggling Opportunities

They even opened the door to tax-avoiding e-cigarettes!

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Thank you, California!

For too many years, Arizona has led the pack—or at least taxed the hell out of it—with among the higher cigarette taxes in the West. "A cigarette tax higher than in neighboring states and cheaper prices on American Indian reservations have helped fuel a growing black market for cigarettes in Arizona," the Cronkite News Service reported in 2014.

It's true that few of us actually paid that $2.00 per pack tariff for a pack of smokes; with every single state bordering us stealing less from smokers and a long, handy border with Mexico, half of all of the cigarettes sold in the state are smuggled from elsewhere, according to research by the Mackinac Center for Public Policy and the Tax Foundation. Many Arizonans avoid getting mugged by enjoying life on the receiving end of smuggling routes. But we could be benefiting by running goods in the other direction.

And then Californians went to the polls on Election Day and hiked their cigarette taxes by $2.00 per pack. Business opportunities, here we come.

California will rake in "[a]dditional net state revenue of $1 billion to $1.4 billion in 2017-18, with potentially lower revenues in future years" according to the state Legislative Analyst's Office. Potentially lower revenue? The analysis acknowledges that "revenue losses would occur due to lower consumption of tobacco products due to the higher excise taxes" although the decline in smoking "appears to have stalled in recent years."

So legislative analysts acknowledge that a dramatic tax hike from 87 cents per pack to $2.87 is high enough to depress revenue over time.

Actually, that's kind of a feature to the hike's sponsors, who sold it as a social-engineering measure to "save lives" by "getting people to quit or never start this deadly and costly habit" (which they deliberately make more costly, of course). That's a goal that inherently works against any promises of billions of dollars in raised revenue.

But "revenue losses" might also result from Californian smokers purchasing cigarettes on the black market where higher taxes don't apply. After all, even at the old 87 cents per pack tax, a third of cigarettes consumed in the state have been smuggled in from elsewhere. There's no particular reason to assume that the black market in affordable smokes is going to shrink now that voters have self-righteously increased the cost of every pack by two bucks. And when that black market grows, it really should come as no surprise to state officials or California voters.

"If Proposition 56 passes, California may open itself up as a more desirable cigarette smuggling destination as neighboring Oregon, Nevada, and Arizona all impose cigarette tax rates nearly $1 lower than the proposed California rate," the Tax Foundation's Morgan Scarboro warned before the measure's passage.

"While California is no stranger to cigarette smuggling," noted Bloomberg BNA's Audryana Camacho after the election "the upcoming $2 increase may spur more activity as neighboring states have tax rates more than $1 lower than California's new tax."

It's really not that hard to figure out. At a tax of 87 cents per pack, one-third of California's cigarettes are smuggled. At $1.66 per pack, 46 percent of New Mexico's cigarettes are smuggled. At $2.00 per pack, half of Arizona's cigarettes are smuggled. At a whopping $4.35 tax per pack of cigarettes, 58 percent of New York's smokes come from the black market where sticky fingered politicians can be avoided.

It's almost like there's some sort of pattern here.

California officials aren't entirely in the dark on the issue. "[T]he measure would provide additional funding…to support increased enforcement efforts to reduce tax evasion, counterfeiting, smuggling, and the unlicensed sales of cigarettes and other tobacco products," according to the legislative analysis. But using tax money to enforce compliance with the tax to raise more tax money isn't a new idea—it's occurred to lawmakers and tax collectors elsewhere. New York actually has a dedicated multi-agency Cigarette Strike Force that regularly boasts of arrests and confiscations. And still, "smuggled, untaxed cigarettes are everywhere," as a Village Voice headline trumpeted, while cigarette tax collections dropped by about $400 million in the five years after the state raised taxes on smokes in 2010.

Good luck with those "increased enforcement efforts," California.

That's even before we get to the big growth industry in tobacco-related (by a very loose definition) products: e-cigarettes. Californians doubled down on the creation of business opportunities for neighboring states by extending the tax hike to all tobacco products, and also to e-cigarettes. E-cigarettes, it should be noted, deliver nicotine to users in a manner so much safer than smoking actual tobacco that the U.K.'s Royal College of Physicians says that "e-cigarettes are likely to be beneficial to UK public health" and that policy should "enable and encourage smokers to use the product instead of tobacco."

"[E]-cigarette use among California adults was about 4 percent in 2013, nearly doubling compared to the prior year," according to the Legislative Analyst's Office, while cigarette smoking has stalled at 12 percent after declining over the years. Instead of encouraging this development, California shuffled e-cigarettes into the category of "other tobacco products" and "would raise the tax on other tobacco products also by $2—from $1.37 (the current level of tax on these products) to an equivalent tax of $3.37 per pack of cigarettes."

So California's e-cigarette users will have every incentive in the world to join their traditional tobacco-consuming neighbors in flocking to tax-avoiding sources.

For those of us in neighboring, lower-tax jurisdictions, this is truly a gift. Thank you, again, California.

NEXT: Did Russia Really 'Hack the Election'?

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  1. No doubt, they will work this revenue into their new budget and never adjust once tax revenue decreases in the future.

    1. They will raise taxes to cover the resulting deficit. What are their taxes on other vices? Perhaps they can create a smuggling opportunity for fast food or soda.

  2. No doubt. I wonder how they are going to police the mail and package delivery services on e-cigarettes.

    1. Quite easily, I imagine. NY did it a decade ago, starting by stealing deliveries before they arrived at their destination, followed by “We are not allowed to sell to the following jurisdictions…”

    1. And from that:
      “Julian Assange associate: It was a leak, not a hack and the DNC insider is NOT Russian”
      […]
      “Murray, who is a close associate of Wikileaks head Julian Assange, explained it further on his website.
      “As Julian Assange has made crystal clear, the leaks did not come from the Russians. As I have explained countless times, they are not hacks, they are insider leaks ? there is a major difference between the two,” he wrote. “And it should be said again and again, that if Hillary Clinton had not connived with the DNC to fix the primary schedule to disadvantage Bernie, if she had not received advance notice of live debate questions to use against Bernie, if she had not accepted massive donations to the Clinton foundation and family members in return for foreign policy influence, if she had not failed to distance herself from some very weird and troubling people, then none of this would have happened.”
      http://www.bizpacreview.com/20…..ian-422765

      Up yours, lefty straw graspers.

  3. Whoa, wait a second. You mean to tell me before the anti smokers of this state voted for the extra $2.00 tax, that Arizona had a higher cigarette tax!? How did this state let that happen? I thought that the only state potentially worse on anything than California would be New York.

    1. My understanding is that it historically has to do with the puritanical folks here pushing in some high vice tax for the rest of the state as a reaction to indian gaming laws.

      But yes, it’s annoying. Cigarettes used to be 7 bucks for reds. And this was 5 years ago even. A lot of people do indeed just do reseveration or Mexico runs.

      1. If I were a smoker I can’t imagine paying the taxes when I could literally just walk over to the Salt River Pima Indian Community bordering Scottsdale and buy cigarettes there. All the freeways and highways in Arizona that are on Indian land advertise having the cheapest cigarettes.

        One can argue AZ’s high cig taxes as being a successful form of government assistance to the Indians since they must make a lot of money off it.

        1. It’s true all over. In Tucson they heavily advertise all these Cigarette Barns on the radio. And there are so many all around. Off all the interstates and in a lot of cities, since there are little conclaves of reservations all over. And if there is one, and it’s not close to another someone will open an cigarette barn.

      2. Arizona has a large Mormon populations so yea they tax that stuff but they allow open carry

        1. It’s weird, libertarian in some ways but somewhat socially conservative. Probably why the marijuana legalization failed here. Though, that bill was kind of iffy so I’m not too upset.

          In Tucson though we’re a city run by Democrats forever and ever, and so things are strange politically and often strangling. Someday I will be a rich man and just live on a compound in the desert near Bisbee.

          1. Dial it all the way back to 2010 for MMJ and it was never a lock, that passed by the barest of margin. My gut says AZ shot down the latest initiative not because “MARIJUANA BAD” but because it was just awful from an economic standpoint. The law effectively would have created a new regulatory and licensing agency but then staffed it with all the people who currently own dispensaries. How inclined would they be to issue licenses to potential competitors?

            1. Agreed. I am very pro legalization, but the way it was to be implemented was very regulatory and reeked of crony capitalism.

              But, the minimum wage hike passed, which is around a 50% increase. So, I question how much economic issues were absolute concern to the voters.

              Though, obviously with everyone making 13 bucks an hour and somewhere around 27,000 a year all poverty will finally disappear! 27,000 dollars is pretty good living in much of this state. So I am just glad that we finally decided to legislate ourselves rich.

              1. What a bunch of pikers. If you want all to be rich, why not raise the minimum wage to $25.00/hour. Strive for great wealth, not just a mere piddling!

              2. What kills me is that I know guys making the minimum wage who actually voted against it because they knew it would mean the end of their jobs and then we got gems like this on the Pro side arguments in the initiative pamphlet

                “Here in Arizona, a person paid the minimum wage will make only $17,000 a year. That’s simply not enough to get by in 2016. Worst yet, almost half of Arizonans can’t earn paid sick days to care for themselves or an ill family member. Families are left with impossible choices ?
                go to work sick and potentially infect others, or risk a portion of a much-needed paycheck.
                As a mother of three, I know what it’s like to wake up in the morning to a coughing, sneezing,
                aching child. Life happens! And when it does, parents need to be able to care for their sick child without fear of losing their job. I’m proud to pay all my employees a living wage, and I know many of my fellow small business owners in Arizona feel the same way. However, this should be the rule and not the exception. A statewide policy will ensure that our neighbors, our friends, and our children can provide for themselves and their family. ”

                Of course, she owns downtown coffee shop – Fair Trade Cafe.

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  4. It’s not smuggling. It’s undocumented imports. Sanctuary cities should welcome them.

  5. I have a great idea. If the legislature can define “heat produced vapor generating devices” (which may or may not also provide nicotine) as “tobacco products”, why not pass a law reducing gravity by 50%? Think of it; cars weigh half as much, and therefore get better mileage, inflict less wear and tear on the roads etc. Great for all parts of the economy! Not to mention passing a law stating that combustion does not produce green house gasses.
    I remember some of the sixties; we had a poster stating that “Reality is a crutch”. Still applies, it seems.

    1. +3.141592653589793……

    2. why not pass a law reducing gravity by 50%

      They tried, but found that assessing fines against gravity wasn’t very effective at generating revenue.

  6. I approve of taxes that I can opt out of paying.

      1. Except they cranked up the taxes on loose tobacco too.

        1. About 8 years ago they upped it by about 400%, made it only slightly cheaper to buy Bugler over a pack of cigarettes.

          1. Yeah, that’s what I was referring to. I guess that was federal tax, though.

            1. Yes, that child medicare thing that happened in 09 or so. All tobacco taxes increased a lot, but the RYO “loophole” was closed by increasing tax to the point that it brought it in line with the cost of Pall Malls.

          2. Jesus… Bugler is like smoking straw.

            1. 5 bucks a pack straw.

  7. California’s Gift to Its Neighbors

    An example of what happens when you go full progtard?

  8. “[T]he measure would provide additional funding?to support [increased] enforcement efforts to reduce tax evasion, counterfeiting, smuggling, and the unlicensed sales of cigarettes and other tobacco products,” according to the legislative analysis.

    They’ve found a perpetual job making machine.

    1. I go to work to make money to pay for my car which I need to get to work to make money to pay for my car.

      1. You sound like one in need of a bicycle. No problemo; instant pay increase and fitness program all rolled into one. You’ll never be on “skids” row, Jerry.

  9. So legislative analysts acknowledge that a dramatic tax hike from 87 cents per pack to $2.87 is high enough to depress revenue over time.

    A narrow interpretation, to be sure. Raising the price of something results in less of that something only in this one specific case – you can’t create a general principle from this and then apply the principle elsewhere. Like, say, to minimum wage laws.

    1. I am waiting for the DC wage to go up to $15 and watch all the restaurants, wine bars, and espresso shops frequented by yuppies and hipsters close and be replaced by McDonalds and Starbucks, who will be the kinds of businesses that can afford the “living wage” because they can afford the robots that will replace employees. It will be rich then to hear the progtards whine about how the city has lost its “authenticity.”

    2. When the minimum wage is raised, fewer folks get paid the minimum wage. Supply and demand operates in all areas of the economy. Remember when we had gasoline at $4.00 plus per gallon? What happened? Folks began switching to more fuel efficient autos.

      1. I just used my Kentucky Credit Card.

  10. “[T]he measure would provide additional funding?to support incr5eased enforcement efforts to reduce tax evasion, counterfeiting, smuggling, and the unlicensed sales of cigarettes and other tobacco products,”

    They saw how much free publicity the NYPD got after they killed Eric Garner over some unlicensed smokes that they decided they just had to get in on some of that. That and apparently California cops didn’t have enough pretenses for hassling poor people and generally making their lives hell.

    1. They can’t all count on someone phoning in a complaint against an unarmed 73 yo with dementia.

  11. The proggy attitude towards tobacco/vaping can be summed up this way-“We hate the evil tobacco companies for getting you hooked and making a profit off of you and we hate you too, you stinky nicotine-addicted little person, so we are going to make you hand over more of your hard-earned $ to us, your benevolent masters.”

  12. It is a great gift to organized crime. Haven’t these idiots ever seen Goodfellas?

    1. They know the tax won’t work, John, but it makes them feel all warm and fuzzy inside because its for “the children”

    2. it will give the cops more reasons to stop large black men who are selling cigarettes one at a time. See bonus

    3. Jokes on you, Italians were banned from the west coast back in the 60s.

      1. That’s just too ripe, BestUsed. You’ve been watching too many gangster movies.

  13. Just wait ’til California secedes and starts printing their own currency. Then you’ll really see some arbitrage opportunities.

    From my lynx link (BBC):

    Gangs can therefore buy up Venezuelan banknotes cheaply on the black market in exchange for dollars or Colombian pesos.
    They then use the Venezuelan currency to buy subsidised goods in Venezuela, which they in turn sell at a profit in neighbouring Colombia.

    We just need more better central planners.

    1. isn’t it amazing that when Northern California wants to secede from the state they are just crazy but when the state wants to secede its considered a prudent reaction to Trumps election win

      1. I actually think it wouldn’t be a bad idea to let the coastal cosmopolises go their own way. I’m talking about narrow slices from Boston to DC and Seattle-Portland-SF-LA, not the red interior of these states. If they start complaining about not having enough food, electricity, fuel, and water, they can be told they need to be more sustainable.

        1. I got thoroughly ridiculed for my idea to create “city-states” out of those metropolises. If we could cut them away from the states they are controlling, and give them “statelike” status without the ability to lord over the less urban areas, I think there would be a significant improvement in liberty in the US.

          The fedgov structure would have to be tweaked to accommodate these statelike entities without giving them full control over the country, but it would free up the poor souls of northern CA and eastern WA and the like who are dictated to by runaway urban areas.

          1. If you were to give each metro area 2 US Senators, that would work out to Boston= +2 D, NYC +2D, Philly +2D, DC +2 D, Seattle +2 D, Portland +1 D (a small city still, so they only get one), Chicago +2D, SF +2D, and LA +2D). However, most of these states, except for possibly MA, RI, and NJ, would likely gain 2 GOP senators. So how would that work? NY +2 GOP, CT +1 GOP, PA +2 GOP, MD +1 GOP (still have Baltimore), VA +2 GOP, IL +2 GOP, WA +2 GOP, OR +2 GOP, CA +2 GOP. Total 16 GOP vs 17 DEM. It would almost be balanced…

  14. California also passed a background check and have a permit just to buy ammo and there is a tax on that ammo now as well. the neighboring states are cheering Californian’s foolishness. I’ve heard of people stocking up to help supply the future black market.

    1. Yeah, sounds like a great business opportunity.

  15. See how proggies like it when a tax on something they enjoy is proposed:
    http://www.nytimes.com/2003/09…..resso.html

    1. The hypocrisy is always expected, never surprising.

  16. I’ve heard of people stocking up to help supply the future black market.

    I just can’t hardly wait for the inevitable story about Kern County deputies executing some guy who brought a couple hundred rounds back from Pahrump.

  17. Cigarette tax shenanigans? You have seen nothing yet. Wait until the new ammunition laws come into effect. The smuggling will be rampant. Who the heck wants to register in order to buy ammo?

    Like making law abiding citizens register is going to stop gun violence. Liberals are religious people with their own dogma that defies logical analysis.

    The cost of enforcement is going to be horrendous, but don’t fear the dumb California voters will be voting in future elections to add more money to the enforcement of smuggled ammo.

    Stupid knows no bounds.

    1. Don’t worry I’m sure they’ll shift the cost of enforcement onto gun shop owners. Of which there will be approximately 3.

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  19. When I read about cigarette taxes, I always remark: “Well, it’s time that the poor start paying their fair share.” Even my leftist friends have to agree that cigarette taxes are a direct drain on poor people, who can least afford to pay it. Rich people who smoke could care less what the tax is.

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