October 5, 2006
New Study: Criminal Black Market Would Boom If Californians Pass Prop 86 Cigarette Tax Hike
For immediate release
Media contact: Brian Phillips (202) 464-5102
Washington, D.C.—An inevitable surge in black market activity and related crime would accompany passage of California’s Proposition 86 on November 7, according to a new study, Tax Foundation Special Report No. 145, “California Schemin’: Cigarette Tax Evasion and Crime in the Golden State,” by Tax Foundation Chief Economist Patrick Fleenor. (Full study at http://www.taxfoundation.org/publications/show/1911.html.)
“California law enforcement will be grateful if the Proposition is defeated,” predicted Fleenor. “The state with the highest cigarette tax is the preferred destination of every cigarette smuggler, and the potential profits are enormous. Even now, with an 87-cent tax per pack, several tractor trailers full of cigarettes roll into California every day, and internet sales are booming. If the tax goes to $3.47 per pack, the black market will boom, and a lot of serious crime will boom with it.”
In 1998, Californians raised their cigarette tax from 37 cents to 87 cents per pack. All three types of crime associated with the cigarette tax increased:
- Cross-border shopping for low-tax cigarettes by California smokers over the road or the internet;
- Large-scale smuggling by organized criminals; and
- Ancillary crimes committed in state.
According to the California Board of Equalization (BOE), which is charged with enforcing the collection of cigarette taxes, some 300 million packs of cigarettes are brought into the state each year and sold without paying California taxes. Despite requiring elaborately printed tax stamps to be affixed to each pack, the BOE has been at pains to stop counterfeiters and smugglers.
“Armed robbery, kidnapping, and even murder are committed because of the cigarette smuggling trade,” Fleenor reports, “all because of a hard-to-enforce tax that dangles easy money in front of the criminal element.”
BOE estimates that cigarette tax evasion has leveled out and even diminished slightly in recent years, as California’s tax has stayed at 87 cents and other states have made themselves better smuggling targets.
Fleenor traces the bizarre history of cigarette taxes and crime in California. The first large state tax sent customers scurrying to military bases and Indian reservations. Now, shipping containers filled with counterfeit cigarettes are unloaded at the ports of Long Beach and Los Angeles, and web-based foreign firms promise to defy tax authorities and ship tax-free cigarettes directly to customers in unmarked packages. (Full study at http://www.taxfoundation.org/publications/show/1911.html.)
The Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.
# # #
