Cigarette smuggling threatens to become a major problem.
There's a giant sucking sound in the United States - and you don't need to be Ross Perot to hear it. It's the sound of hundreds of thousands of Americans smoking cigarettes smuggled from Mexico and other points of entry. And it's growing louder every day.
Over the past 15 years, the average state and federal tax on a pack of cigarettes has gone up 152 percent - from 21 cents to 53 cents. And some states are way above the average. Michigan, for instance, raised its state cigarette tax 200 percent in May 1994, from 25 cents a pack to a national high of 75 cents.
With politicians hot for tax revenue and cigarette prohibitionists on the march, the trend can only continue. Indeed, one of the few things Congress seemed to agree on during the health-care debate was the easiest way to get money to pay for national health care: Raise cigarette taxes. The Senate Finance Committee's bill proposed an increase in the federal cigarette tax of more than 900 percent.
The effects of such prohibition-by-taxation are as predictable as they are usually ignored. Cigarette smuggling is well on its way to becoming a major problem in the United States. Raising cigarette taxes any further risks repeating Canada's recent disastrous experience with cigarette smuggling, which threatened "the very fabric of Canadian society," according to Canadian Prime Minister Jean Chretien, when he announced deep cuts in cigarette taxes a year ago.
Contraband cigarettes held no more than 2 percent of the total cigarette market in Canada until 1991, when the government imposed a value-added tax and increased the federal cigarette tax by 146 percent. After the tax increase, however, the price differential between cigarettes sold in Canada and those in the United States soared to more than CDN$35 a carton. More and more smokers refused to pay as much as CDN$50 for a fully taxed canon of cigarettes when they could buy the same brand on the black market for CDN$20-40.
The result was an invitation to organized crime. Mohawk Indians from tribes along the U.S.-Canada border, biker gangs, and Asian Triads smuggled cigarettes across the border in boats, airplanes, trucks, vans, legitimate courier companies, and snowmobiles.
Ironically, most of the smuggled cigarettes were made in Canada. Canadian tobacco companies exported 15.6 billion cigarettes to the United States in 1993, up more than 830 percent from 1990. Because there was no apparent increased U.S. demand for Canadian cigarettes, it's widely accepted that almost all of the exported cigarettes, on which no Canadian taxes were paid, were smuggled back into Canada.
These cigarettes were sold by street vendors, out of the backs of cars, at flea markets, at...