Cigarette tax hikes don't help: Opposing view

Lyle Beckwith | USA TODAY

We all support reducing underage use of tobacco products, and proven methods are in place — such as retailer training programs, federal regulation and underage possession laws — to help achieve this goal.

The most recent data show that cigarette use by those 12 to 17 years old has declined to 8.7% — the lowest level in a generation, according to surveys by the Substance Abuse and Mental Health Services Administration. Part of this decline can be attributed to legitimate retailers ensuring that underage individuals cannot buy tobacco products in their stores.

Seventeen years ago, the convenience retailing industry helped form the We Card coalition to train retailers how to prevent underage sales. Before We Card, minors were able to purchase tobacco 76% of the time. Since implementation of We Card, that rate has decreased every year. The most recent Food and Drug Administration data show that after more than 140,000 inspections nationwide, the number has dropped to 5.65%.

Attempts to further this progress through excise tax increases, however, have had negative effects on both tobacco control efforts and responsible retailers. There is a direct correlation between increased excise taxes and black market sales.

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% of total federal and state cigarette excise taxes collected annually.

Keep in mind, the black market doesn't check IDs, and it doesn't remit taxes, but it does sell cheap cigarettes — among other things!

As you would expect, as the tax rates climb, the black market flourishes. The states with some of the highest illicit sales (New York, Rhode Island and Washington) are among those with the highest taxes. In New York, with the highest tax rate in the nation, nearly half the cigarettes sold are contraband.

The source of these contraband cigarettes varies from low-tax states, to Native American reservations, to illegal and counterfeit product smuggled in from overseas. Simply raising the tax rate in low-tax states will not deter smugglers; it will only shift them to other low- or no-tax sources. This problem has been created and exacerbated by the constant rise in excise taxes.

In a perfect world, convenience stores would be agnostic about tobacco tax increases. As long as everyone is paying the tax, we all compete on a level playing field. But it is not a perfect world.

Study after study shows that attempts to socially engineer behavior through increased taxes produce a far different outcome than intended, with the black market the main beneficiary.

Lyle Beckwith is senior vice president of the National Association of Convenience Stores.