Senate Wants to Spend $2 Million to Gain Much More Than That in Tobacco Taxes

Friday, May 22, 2015

Before long we could have a new, state-funded team of revenue agents targeting the illegal sale of tobacco products in Massachusetts, a surprisingly profitable criminal endeavor.

This past week, the Massachusetts Senate included $2 million in its version of the new state budget to create a “multi-agency illegal tobacco task force.”   The House of Representatives and governor still have to give their approvals before the expenditure can go forward.
The case for spending that money is convincing.  I’d be surprised if the envisaged task force is not up and running by the fall under the auspices of the Department of Revenue.  A specially appointed nine-member group known as the Commission on Illegal Tobacco, which studied the issue back in 2013-14, estimated the state could operate a 20-member task force on an annual budget of $2 million.

In recommending a new task force, the commission said “lost revenue from illegal tobacco distribution” ranged from $62 million to $246 million per year.  It noted that, if the state could recover even 10% of those sums, “revenue protection and enhancement of between $6.2 and $24.6 million” would result.  
In other words, a $2 million task force would pay for itself many times over.

Massachusetts is a hotbed of illegal selling of cigarettes, cigars and related products, such as chewing tobacco, for the simple reason that we tax the hell out of these products.  The higher the taxes on anything, the harder and more ingeniously some persons work to beat the system.
According to the commission’s formal report, submitted March 1, 2014, “Violators avoid paying the tobacco excise and sales taxes in Massachusetts in multiple ways, including individual bootlegging, organized wholesale domestic smuggling, international smuggling, and counterfeits,” that is, cigarettes made in unlicensed facilities and packaged for sale as established brands.

At $3.51 a pack, Massachusetts has the second-highest taxes on cigarettes in the U.S., behind New York, at $4.35 a pack. 
By contrast, Vermont taxes cigarettes at $2.62, the 9th highest rate; Maine at $2.00, 12th highest; and New Hampshire at $1.78, 18th highest. 

The other New England states, Rhode Island and Connecticut, have the third- and fourth-highest cigarette tax rates, respectively:  Rhode Island’s is $3.50, one penny below Massachusetts;  Connecticut’s is $3.40.
The Massachusetts legislature voted in 2013 to raise the per-pack taxes on cigarettes by $1 to $3.51.  The commission estimated the impact of that change at $157 million in annual additional state revenue.  The commission also estimated that the total cost of cigarette tax avoidance would rise by $24 million per year to $129 million.

Thus, the net advantage to the state of the new rate would be $133 million, ($157 million minus $24 million).
I’m sure there are folks who believe we’re overdoing it with tobacco taxes, that we’re forcing ordinary citizens into criminal behaviors by having the second-highest cigarette taxes.  Why can’t we be more reasonable, they probably wonder, like, say, Ohio, which has a per-pack cigarette tax of $1.25, the 28th highest in the nation?

I understand that view but I’ll never be won over by it.  Our “unreasonable” taxes have produced a smoking rate among Massachusetts high school students of 10.7% versus a national average among high schoolers of 15.7%. 
Anything that keeps kids off the cancer feed is good.




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