Cigarette Taxes Introduction Simple Review

Cigarette Taxes

INTRODUCTION simple review of cigarette taxes in the individual U.S. states reveals that range of taxes charged on a purchase of a pack of cigarettes is between $0.17 per pack up to $3.00 a pack. Accompanying the tax hikes on cigarettes have are much more serious problems as this work will illustrate.

CIGARETTE TAXES and CRIME

The work of Patrick Fleenor entitled: "Cigarette Taxes, Black Markets and Crime: Lessons from New York's 50-Year Losing Battle" states: "As large state government budget gaps have opened in the past year, lawmakers across the country are turning to cigarette taxes for added revenue." (2003) for those who support these taxes, the taxes are portrayed as "innocuous levies that improve public health." (Fleenor, 2003) the fact is that since the first imposition of taxes on cigarettes purchases in the 1920's "black markets and related criminal activity have plagued high-tax jurisdictions. Such activity has proven to be resistant to law enforcement curtailment efforts." (Fleenor, 2003) Cigarette taxes are highest in New York City at $3.00 per pack. The response of consumers to these high taxes on cigarettes is stated to be a "turning to the city's bustling black market and other low-tax sources of cigarettes." (Fleenor, 2003) Fleenor relates: "During the four months following the recent tax hikes, sales of taxed cigarettes in the city fell by more than 50% compared to the same period in the prior year."(2003) This is not surprising in New York City since it has a "long history of cigarette tax evasion." (Fleenor, 2003) it is additionally related by Fleenor (2003) that over several decades "a series of studies by federal, state, and city officials has found that high taxes have created a thriving illegal market for cigarettes in the city. The market has diverted billions of dollars from legitimate businesses and governments to criminals." Accompanying this diversion of tax money is the more heinous crimes, which are stated to have been engaged in by "smalltime crooks and organized crime" who have "engaged in murder, kidnapping, and armed robbery to earn and protect their illicit profits. Such crime has exposed average citizens, such as truck drivers and retail store clerks to violence." (Fleenor, 2003) Fleenor makes the critical observation that: "Too often, policymakers do not consider these effects in the erroneous belief that people do not respond to government -created economic incentives." (2003) the following figure illustrates the New York cigarette tax rates per capita taxed sales relative to the U.S. average between 1955 and 2002.

New York Cigarette Tax Rates and Per Capita Taxed Sales Relative to U.S. Average

Source: Fleenor (2003)

II. The DEMISE of TRUCKING COMPANIES HAULING CIGARETTE CARGO

Fleenor relates the demise of Marion Auto Trucking who had "performed general hauling services for the Lorillard tobacco company in New York City and part of New Jersey" (2003) This company was managed well and had been operating since the decade of the 1920s and "had made substantial investments to modernize its fleet, including equipping trucks with alarm systems, and experimenting with camouflaging trucks in an effort to thwart hijackings and theft." (Fleenor, 2003) on July 10, 1070 armed men hijacked one of the company's trucks and took the driver into an area described as 'remote" and released the driver. The hijackers took 400 cases of cigarettes and this was not the only instance as other trucks belonging to Marion were hijacked at gunpoint however, the security systems "prevented the thieves from seizing any cargo." (Fleenor, 2003) Initially, Marion Auto Trucking was covered under the corporate insurance policy of Lorillard, but this soon changed and Mario had to buy their own policy. However, even with installation of further security measures, which came at a great cost, individuals became afraid to drive for the company and fifteen months after the first 1970 hijacking, and after 51 years in business the company folded and laid off everyone working for them. Presently, 200 cases of cigarettes "in a modest-sized transport truck would have a retail value in New York City of around $1 million..." (Fleenor, nd) it is related that it did not take long for this to spread into other U.S. states with trucks all around the United States being hijacked and robbed of their cigarette cargo. The following tables lists the state excise tax rates on cigarettes for January 1, 2007.

State Excise Tax Rates on Cigarettes (January 1, 2007

TAX RATE per pack)

RANK

STATE

TAX RATE

CENT PER PACK

Alabama (1)

Nebraska

Alaska (3)

Nevada

Arizona

New Hampshire

Arkansas

New Jersey

California

New Mexico

Colorado

New York (1)

Connecticut

North Carolina

Delaware

North Dakota

Florida

Ohio

Georgia

Oklahoma

Hawaii (3)

Oregon

Idaho

Pennsylvania

Illinois (1)

Rhode Island

Indiana

South Carolina

Iowa

South Dakota

Kansas

Tennessee (1) (2)

Kentucky (2)

Texas

Louisiana

Utah

Maine

Vermont

Maryland

Virginia (1)

Massachusetts

Washington

Michigan

West Virginia

Minnesota (4)

Wisconsin

Mississippi

Wyoming

Missouri (1)

Dist. Of Columbia

Montana

U.S. Median

Source: (http://www.taxadmin.org/FTA/rate/cigarett.html)

III. CIGARETTE TAX: A REGRESSIVE FORM of REVENUE