Higher Cigarette Taxes Boon to Organized Crime

Higher taxes aren’t generally a path to economic growth and job creation. Higher cigarette taxes, however, are increasingly boosting at least one sector of the economy, organized crime. 

‘Smuggled cigarettes have become the new currency of organized crime, and a lot of these criminal organizations are finding that it’s more profitable than illegal narcotics,’ Rich Marianos, the retired Assistant Director of the Bureau of Alcohol, Tobacco and Firearms, recently noted.

Marianos said that black market tobacco smuggling has become “a high-profit, low-risk criminal enterprise. Compared to drug offenses where there’s a mandatory minimum sentence, there’s no penalties out there for the cigarette trafficker.”

‘They’re being sold in the bodegas, in the convenience stores, they’re being sold on the street, they’re being sold in the housing projects,” Marianos said, “by street gangs like the Latin Kings, terrorist organizations, the Russian Mafia.'”

Politicians love raising tobacco taxes. With the number of smokers continuing to fall, fewer voters feel the pain of the higher taxes directly. Last year, three states raised their cigarette taxes, even though the states were enjoying higher tax revenue. 

The political addiction to higher cigarette taxes is creating a boon for organized crime. Last month, the Tax Foundation, in testimony before the US Senate, noted that over 56% of the cigarettes sold in New York State were smuggled in from other states. New York has the highest tax on cigarettes in the country. 

Many smokers are avoiding these higher taxes, though. They are simply buying their smokes, usually unwittingly, from criminal syndicates. 

As documented back in 2009, New Jersey has had the unfortunate experience of seeing total revenue from cigarette taxes drop after pushing through a cigarette tax increase. 

But it is also a nationwide problem. The Mackinac Center for Public Policy estimates that nearly $3.5 billion in revenue has been lost year-to-date as a result of cigarette smuggling (Mackinac’s figures are available at this site). A more revealing way to look at this, though, is not in tax revenue lost to the government, but rather that money being used to grease a criminal network. 

This is another useful reminder of why cigarette taxes are bad news: Unstable revenue bases. Regressive taxes. But perhaps now most worryingly, incentivizing and stimulating organized crime.