By Michael LaFaive and Kristina Rasmussen
In a bid to keep money flowing for the state construction program, Illinois Senate President John Cullerton has floated a plan to raise the state cigarette tax to $1.98 per pack.
Fine, say some nonsmokers. We don't buy cigarettes, so we won't feel the pinch. But what if the hike resulted in more criminal behavior in Illinois, including the Metro East area?
A recent study by a Michigan research institute forecasts that a $1 per pack increase could result in rampant, large-scale cigarette smuggling. Across the country, the opportunity by criminals to profit from trafficking tobacco has led to violence against people and police, including small-scale retail cigarette theft, murder-for-hire schemes, the growth of a counterfeit cigarette market and even the financing of Middle East terrorist organizations.
Research shows smuggling occurs at higher rates when government increases prices -- usually through a tax -- and when the increased prices are significantly higher than in neighboring states.
In 2009, a modest 5.9 percent of all cigarettes consumed in Illinois were smuggled in from other states, according to the Mackinac Center for Public Policy. By contrast, Michigan's smuggling rate is more than 26 percent of total consumption -- the 10th-highest smuggling rank in the nation. Why? One reason is that Michigan levies a $2 per pack tax on cigarettes, which is higher than neighboring states.
Through 2009, Illinois ranked 30th in the nation when it came to smuggling. However, the state's smuggling rate could leap to 26.3 percent if the $1 cigarette tax increase passed, and Illinois would displace Michigan as having the 10th-highest smuggling rate in America.
Should Illinois' tax go to $2 a pack, Missouri's 17-cents per pack tobacco tax would make it worth criminals' time to up their smuggling into the Prairie State.
As with hard drugs, smuggling can lead to violence. And too often, blameless bystanders can get caught up in the mix.
In 2008, an elderly New York couple was accidentally killed in a high-speed chase between Canadian police and a suspected cigarette smuggler. In 2002, a would-be cigarette thief rammed a Michigan police cruiser, dragging the officer down the street. YouTube has plenty of videos showing thieves breaking into stores to steal cash and cigarettes.
Cigarette truck hijackings also have long been a problem. Mafia Don John Gotti's first major arrest was for stealing a trailer of cigarettes. In Michigan, several hijackings led Detroit's last remaining wholesaler to hire armed security teams.
In July 2009, the Bureau of Alcohol, Tobacco, Firearms and Explosives confiscated 12 million counterfeit cigarettes in Virginia alone. That same year, agents arrested two men for attempting to swap cocaine for 600,000 untaxed cigarettes. Perhaps worse, profits from contraband trafficking have been funneled to anti-American terrorist groups like Hezbollah in Lebanon.
Illinois has porous borders. Traffickers and consumers will find a way to acquire the products they want at the best price. Shortly after Florida hiked its tax, a prison guard was caught smuggling cigarettes for distribution to inmates. It is na've to think that the state's security apparatus could dramatically dampen the massive new inflow of illegal cigarettes.
Some believe a $1-per-pack cigarette tax hike would generate about $377 million in annual revenue. While a steeper cigarette tax could raise state coffers, smuggling alone could limit the take to about $250 million -- just two-thirds of what is expected.
Illinois lawmakers might crave new sources of revenue to keep the state capital program moving, but new spending should not come at the expense of public safety.
Michael LaFaive is director of fiscal policy for the Mackinac Center for Public Policy and co-author of Cigarette Smuggling and Taxes 2010. Kristina Rasmussen is Executive Vice President of the Illinois Policy Institute.
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