Cigarette taxes lead to smuggling, but also to less smoking

With some issues, you’ve got to cut through the smoke to see what’s really important.

Which brings me, naturally, to cigarettes.

It may surprise you to know that a good chunk of the few people you see lighting up in Utah (smoking rates here — 10.6 percent in 2012 — are the lowest in the nation), got their cigarettes from across the state’s borders.

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The question is whether we should be concerned about that.

Four years ago, the Utah Legislature made the bold move of raising the tax on cigarettes by $1 a pack. It wasn’t easy, which may perplex people who think they know Utah.

The chief arguments against raising what was one of the lowest taxes in the nation were that it would hurt convenience store owners, and that it would lead to an increase in smuggling from other nearby states.

Today, Utah tacks $1.70 onto the cost of every pack. Wyoming, by contrast, charges 60 cents, while Idaho charges 57 cents and Nevada 80 cents.

That makes this the costliest state on the block, and we all know what happens to sales in the places that charge the most.

How far would you go to save a buck to feed an addiction? Back in 2010, State Sen. Howard Stephenson envisioned communities of smokers taking turns driving across state lines to buy cartons of cancer sticks for their friends and neighbors at a cheaper price.

It sounded a little, well, nutty. Don’t smokers just go to the corner store when they run out? But there is evidence now that he was onto something.

The Mackinac Center for Public Policy, located in Michigan, has published its yearly study of cigarette smuggling by state. Using a statistical analysis, the report concludes that tax increases lead to an increase in smuggling, and that Utah is a good example.

In 2006, back when the state tax was 70 cents a pack, 12.9 percent of the cigarettes consumed in the Beehive State came in from another state. But in 2012, after the tax increase, that jumped to 27.7 percent, moving the state from 21st to ninth on the most-smuggled-to list. In Wyoming, by contrast, 22.3 percent of all cigarettes sold left the state. Idaho’s net outflow was 21.3 percent and Nevada’s 16.8 percent.

This is all fairly easy to understand. If your state has a higher cigarette tax than its neighbors, people will smuggle cheaper smokes across your borders. When that happens, your state loses out on taxes, and it also loses some control over its cigarette laws.

Like many states, Utah requires retailers to put a tax stamp on cigarettes that are sold. Studies in other parts of the nation have looked at packs of cigarettes littering streets and judged, by the state stamps, that a high percentage were trafficked.

According to the Washington-based Tax Foundation, some smuggling involves counterfeit stamps or even counterfeit versions of legal brands. A police officer in Maryland was found to be fencing contraband cigarettes while on duty.

Who knew this was such big business in America?

There is, of course, another side to this story. I called the Utah Department of Health for that. It turns out that, in the years preceding the tax hike, the percentage of Utah high school students who admitted to smoking during the previous 30 days held steady, and in fact rose a bit to about 8 percent. After the tax hike, it has fallen to 4.4 percent.

In 2010, officials said raising the cigarette tax would lead some people to quit and many young people to never start. Today they estimate 10,500 kids will never light up because of the higher tax.

So, people do cross the border to buy cigarettes, and yet fewer people smoke. It’s rare when you can look back on a hotly debated legislative issue and find that both sides turned out to be right.

The question is whether it’s worth putting up with a little smuggling in exchange for a reduction in overall smoking rates. That should be a no-brainer.

Meanwhile, evidence also suggests a lot of the young people who might have started smoking cigarettes are instead smoking e-cigarettes, which raises a host of new concerns. And yet the Legislature just defeated a bill that would have put controls on those products. 

People who think they know Utah may be perplexed by that, too.