Cigarette Tax vs. Smuggling

This article discusses a problem that occurs when state-established cigarette taxes are raised to a point where consumers are no longer willing to buy cigarettes from that state. New York State is the primary example used in the article due to the fact that it has the highest cigarette tax in the country – $4.35 – and three out of every five cigarettes consumed there are smuggled in from lower-tax states. It is interesting to note that consumers, despite their state’s efforts to increase revenue via cigarette taxes, are able to respond in such a way that they will spend the money to smuggle the good from another state. Clearly, the opportunity cost of potentially paying for gas and/or finding someone with out of state cigarettes is more worthwhile than paying an absurd amount of money for convenience.

2 Comments »

  1. drew Said,

    December 10, 2013 @ 8:10 pm

    This is a very interesting article because cigarettes are a unique product given that they are addictive. They are generally seen as being inelastic because people will always demand them regardless of their price. That is why I am not surprised that consumers are smuggling them from out of state because they need them. Also, since some people who are highly addictive need up to a pack a day, they are more concerned about the price if their cigarettes. Therefore, paying more to buy cigarettes in bulk from out of state will pay off eventually because paying a $4.35 tax on each pack will out-cost the price of gas pretty quickly. Lastly, I’m just surprised that New York has such a high tax on cigarettes. You would think that the state would keep the tax reasonable since it is such a popular product and they don’t want to lose customers.

  2. rinaldoj Said,

    December 10, 2013 @ 10:54 pm

    I thought this article was interesting because when I think about smuggling I think of piracy or illegal drugs, not cigarettes or other legal items. As I thought about this more I thought about other things that are similar, either taxed differently from state-to-state. Alcohol is one, fireworks, and I guess now, marijuana. I can go to New Hampshire and pay a MUCH lower price/tax for beer/wine/liquor and carry (smuggle?) it home. Same with fireworks. Now marijuana is different because it is still legal, but what if one state that allows medical marijuana and someone goes from one state to another with a legal joint and then gets arrested where it’s illegal. \

    Good article, really got me thinking.

RSS feed for comments on this post · TrackBack URI

Leave a Comment