Texas Raises Taxes, Creates A Black Market

At the beginning of the year, Texas increased taxes on cigarettes by $ 1.00 per pack. Now it appears that the tax increase has helped fuel a black market in cigarettes ?

Now that Texans have to shell out $1 more to the tax man for a pack of smokes, many may look elsewhere for their fix. Like “under the counter” of some neighborhood corner stores or smoke shop, authorities say.The tax increase, which took effect at the beginning of January, means the tax on a package of cigarettes is now $1.41 — pushing the average overall price to almost $5 per pack.

Authorities predict the price increase may be followed by an increase in black-market cigarettes in the state.

Just how much of an increase isn’t known because no agency could provide statistics.

Officials acknowledge they’ve seen black-market smokes hit the streets even when Texas’ tax rate was among the lowest in the country. Before January, the state’s most recent cigarette tax increase — from 26 cents to 41 cents — was in 1990.

Of course, black markets like this don’t just exist in Texas, they’re a worldwide enterprise:

Julie Myers, assistant secretary of U.S. Immigration and Customs Enforcement, told a congressional committee in July that international and domestic rings are lured to cigarette smuggling and the low risk of prosecution.

“International cigarette smuggling has become a lucrative criminal enterprise, resulting in the annual loss of billions of dollars in tax revenue and customs duties around the world,” Myers testified. “While the extent of cigarette smuggling in the United States is unknown, it is ICE’s formal assessment that the volume of this illegal trade is significant.”

The lesson seems pretty clear. Increase taxes on a product that people want to buy and some of them, maybe not everyone but enough to make it worth the while of people willing to break the law to make money, will find ways to buy the product without paying the taxes.

In other words, increasing excise taxes creates incentives that can lead to other forms of criminal behavior.

H/T: Radley Balko