The Maryland Public Policy Institute
Want to pass a law to encourage cigarette smuggling in Maryland? Just support a cigarette tax hike. Increasing cigarette taxes leads to increased cigarette smuggling. Over the last seven years, when Maryland increased cigarette taxes by 100%, our state has seen consumption of smuggled cigarettes more than double. If lawmakers hike the cigarette tax again this year, we’ll see an even greater increase in tax evasion and criminal cigarette purchases.
The Mackinac Center in Michigan just released a report detailing each state’s cigarette smuggling as a percentage of total cigarette consumption. Maryland, with one of the higher cigarette taxes in the nation, is the 13th highest state. That’s up from the 24th highest state in 2006, the year before our politicians hiked the cigarette tax.
Something that’s clear from the chart is that where cigarette taxes are high, there’s more cigarette smuggling. New York, the state with the highest cigarette taxes, is also the highest for smuggling. Does that surprise anyone?
Something that also seems clear is that when states raise cigarette taxes, smuggling goes up. In Maryland, the Mackinac Center estimates that smuggled cigarettes are just under 26% of our state’s consumption. That, too, is up from 2006, when that percentage was a little over 10%.
Retailers know this. Travel Route 13 on the Eastern Shore and you’ll see retailers on the way into Maryland advertising their cheap cigarettes. In fact, the last sign you see in Virginia coming north before you enter Maryland says “last chance for cheap smokes.”
Lobbyist Vinny DeMarco has made it his mission this year to push for yet another increase in the state’s cigarette tax. He may well get his way, since there are few things more popular in Annapolis than a tax and few groups more unpopular in Annapolis than smokers. It’s a perfect storm for bad tax policy.
Someone picking up a carton or two of cigarettes from Virginia or Delaware or D.C. and bringing them home to smoke is pretty low-level in terms of smuggling. Make no mistake, however, it is still illegal and deprives the state of tax revenue, not to mention depriving Maryland retailers of sales. But it’s perfectly understandable – why is a smoker going to let a silly law prohibiting him from bringing a pack of cigarettes across an imaginary line get in the way of saving a couple bucks?
There’s also another type of cigarette smuggling – people loading up cars or trailers with low-tax cigarettes in North Carolina or Virginia and then driving them into high-tax states and selling them to retailers. That type of smuggling happens a lot in New York City, where the state and city taxes on cigarettes make it a very lucrative risk for both smugglers and retailers.
We don’t see this type of large-scale smuggling as much in Maryland yet. But if our cigarette tax rate begins approaching New York levels (and that’s what the DeMarco plan would do), then Maryland will become the preferred destination for smuggled cigarettes. It takes more gas money to travel from North Carolina to New York. Smugglers spend more time on the road, exposing themselves to more law enforcement when they go from North Carolina to New York. It would be so much easier for smugglers to simply stop in Maryland, saving travel time and gas money. Many smugglers don’t do this now because even though the trip is longer, New York’s high tax rates make it more profitable for them to spend the gas money and take the risk. A higher cigarette tax rate in Maryland will provide a huge incentive for these smugglers to forget about New York and make Maryland their new destination.
Do legislators want our state to be even higher in the cigarette smuggling rankings? Do they want to encourage retailers to break the law by buying cigarettes from out-of-state? We’ll find out over the next 90 days.