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Maryland’s Cigarette Tax: The Negative Implications

In late January, Watchdog Wire Maryland brought to our attention that Maryland ranks 13th in the nation for consumption of smuggled cigarettes.

In 2011, consumption of smuggled cigarettes in Maryland rose to 25.8 percent, up from 10.4 percent in 2006.  This increase in smuggling coincides with a 100 percent increase in the cigarette tax.  Last year, Comptroller Peter Franchot reported that seizures of contraband tobacco had quadrupled between 2010 and 2012, and his office had seized over 325,000 packs of smuggled cigarettes. The Tax Foundation based its report on a Mackinac Center Study, which found that a rise in state cigarette taxes coincides with higher rates of smuggling.

There are a multitude of reasons why hiking the cigarette tax is a bad idea, several of which are highlighted in this Maryland Public Policy Institute article, such as misleading revenue claims, increased smuggling and negative impacts on Maryland businesses.  Increasing excise taxes on tobacco products not only has negative effects on tobacco control efforts but also on retailers.

The numbers are not small. Tax hikes have caused a nationwide black market for cheap illicit cigarettes. That has led to contraband cigarettes robbing state and federal governments of more than $5 billion in taxes — about 16 percent of total federal and state cigarette excise taxes collected annually.

Underage tobacco use is a chief concern. Advocates for increased cigarette taxes use this argument to gain support for the tax. However,  according to surveys by the Substance Abuse and Mental Health Services, cigarette use by 12 to 17 year-olds has declined to 8.7 percent, the lowest level in a generation. The We Card coalition has also been successful at training retailers to identify underage purchasers and purchases by minors has declined every year the program has been in place.

Overall, the evidence shows that increasing the taxes on cigarettes does more harm than good. Consider New York, a state with the highest cigarette tax in the nation.

Three of every five cigarettes consumed in New York State were smuggled in from lower-tax states in 2011, according to new estimates from the Mackinac Center for Public Policy, a free-market research organization in Michigan. That is the highest smuggling rate in the country.

This year–as they do almost every year–despite overwhelming evidence to the contrary, cigarette tax advocates present to the Maryland legislature the siren’s song that increasing this tax will solve public health problems and raise new revenue.   Legislation introduced this session by Senator Verna Jones-Rodwell (D-Baltimore City) and Delegate Eric Luedtke SB 700 and HB 683 propose to raise Maryland’s per-pack cigarette tax from $2 to $3, and increase the wholesale tax rate on other tobacco products from 30 percent to 95 percent.

 

Jackie Wellfonder

Jackie Wellfonder is a proud conservative activist and strategist. She started blogging in 2012 and spreading a common sense message of fiscal conservatism, limited government, and transparent governance. She is also a radio host at www.waarradio.com.

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Categories: Budget and Finance, Must Read, Regulation, Taxes
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