Lesson For North Dakota: Tobacco Smuggling Spikes In Minnesota After Tax Hike

Last week I wrote a post about proposed tobacco tax hikes being considered by lawmakers in Bismarck. I cited research by the Mackinac Center which indicated that higher taxes result in higher rates in smuggling, and that raising the tobacco taxes here in North Dakota would almost certainly create a dilemma for those tasked with enforcing the higher taxes.

The Mackinac researchers also wrote a guest post for SAB.

Some critics scoffed at the idea that higher tobacco taxes would create a smuggling problem, but we have a real world example indicating that this is a very real issue. Minnesota recently passed a 130 percent increase in their per-pack tax on cigarettes (North Dakota is considering a 250 – 354 percent hike, depending on which bill might pass). That has led to a lot more bootlegged cigarettes in stores:

Minnesota Department of Revenue officials seized or assessed untaxed tobacco products in more than 40 percent of the 374 retail inspections conducted through the first three quarters of last year. Before the cigarette tax jumped $1.60 per pack, or 130 percent, retail inspections found untaxed tobacco products only 8 percent of the time. The agency typically conducts 700 inspections a year.

State Patrol officers are also seizing a growing number of untaxed tobacco products as smugglers get caught hauling the goods across state lines, revenue officials said. “This is now obviously a more organized, or a more robust presence of smuggling,” Revenue Commissioner Cynthia Bauerly said Tuesday.

Acting on the recommendations of a 2014 tobacco enforcement report, the agency said it needs $1 million annually for 11 new inspectors to crack down on cigarette smugglers and retailers selling untaxed tobacco products. Officials also want enhanced penalties for lawbreakers and a new state license for tobacco retailers that would give the tax agency authority to revoke permits.

The Fargo Forum today has an editorial railing against opponents of raising the tobacco taxes in the state, claiming the debate is between “sales or lives.” But is it?

Maybe higher tobacco taxes will encourage some users to kick the habit, but nobody is expecting the taxes to eliminate tobacco use. So is a marginal change in tobacco use worth empowering bootleggers? People who are enterprising scofflaws, at best, and organized crime at worst?

It seems the nanny statists just can’t seem to grasp the lesson of alcohol prohibition from the last century. The more we do to restrict the sale and use of an in-demand product, the more profits we put in the pockets of criminals.

Though I wouldn’t blame the state’s Native American communities if they were rooting for these tax hikes to pass. They are exempt from the state’s tobacco taxes, and while non-Native Americans who purchase tobacco products on the reservations are supposed to report the purchases to the state, the expectation that anyone is actually going to do that is a bit ridiculous.

There’s no question that tobacco use has serious health consequences, but people who think we can tax tobacco out of existence are as naive as the temperance activists of previous generations who thought they could stamp out drinking.