Saturday, January 16, 2010

Tobacco tax hike could backfire

Should they turn their gaze northward, state legislators looking to increase tobacco taxes by as much as $1 per pack will discover a cautionary tale.

One recent report out of Canada suggests that 48 percent of cigarettes consumed in Ontario, for example, come from smuggling — a rate that has increased and decreased with excise tax rates.

Our own research indicates that, if the $1-per-pack tax increase is adopted in Washington, the state’s cigarette smuggling rate will leap to more than 50 percent of the total market, along with other very expensive unintended consequences.

As recently as 1980, cigarette tax rates in Canada were in the same range as in most U.S. states. In a book published in 2000, “Tobacco Control in Developing Countries,” several economists describe how this changed beginning in the early 1980s. By 1994, Canadian federal and provincial cigarette taxes had been increased to “more than five times the U.S. average.”

As a result, smuggling accounted for 30 percent of the market by 1993. To combat this, Canada’s federal government (and some provinces) slashed cigarette tax rates in 1994. As predicted, legal sales rose dramatically and “the overall smuggling problem all but disappeared.”

The economics lesson didn’t stick, however. By 1998, Canada’s politicians were once again increasing cigarette taxes, widening the gap between their rates and most American taxing jurisdictions. As a result, Canada began experiencing renewed and rampant cigarette smuggling.

In March 2009, the Center for Public Integrity described Canada as having “a runaway black market,” complete with brazen heists from tobacco farmers, mobster- and gang-related crime, and even violence against police.

Of course, these unintended consequences are not limited to Canada. Examples of theft, violence and organized crime involvement in the illicit cigarette trade are reported with great frequency here in the United States, too.

In December 2008 we published a study with colleague Patrick Fleenor, titled “titled “Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review,” designed to measure the smuggling rates of 47 contiguous states. We recently updated the model to include changes to the Federal Excise Tax.

Based on that model, we believe that hiking taxes $1 per pack will lead to a leap in the total smuggling rate in Washington from 39.3 percent to 51.5 percent. That is, 51.5 percent of the cigarettes smoked in the state of Washington will be contraband.

We also expect legal paid sales to drop by at least 20 percent over 12 months following the tax hike, but as a direct result of smuggling, not from people quitting smoking. Research shows that as much as 85 percent of the after tax-increase change in cigarette sales is a function of tax avoidance — as opposed to smoking avoidance.

The smuggling will occur in two major forms: casual and commercial.

Casual smuggling typically involves individual bargain hunters shopping for themselves or perhaps a friend over the state border or perhaps on the Internet.

Commercial smuggling involves large-scale organizations that ship semi-tractor trailers and vans long distances and maintain complex distribution systems.

Our estimates indicate that nearly 30 percent of the smuggling will come from these commercial haulers. It’s worth noting that some of the trailers are actually hijacked from underneath legitimate truckers themselves.

Anyone familiar with the history of alcohol prohibition knows that much of the booze consumed in the states then was brought in illegally from Canada. Today’s policymakers are engaging in a form of “prohibition by price” — making cigarettes effectively illegal by raising their costs — so we’re reliving many of the unintended consequences of that era.

Consider some parallels: violence against police, corruption of law enforcement, the sale of adulterated products manufacturerd by illegal producers (“bathtub smokes,” anyone?), smuggling, theft, hijacking, expansion of organized crime syndicates and even the sale of “loosies” – cigarettes illegally sold one stick at a time. (During Prohibition, men would sell single shots of whiskey to factory workers leaving manufacturing plants in the Detroit area.)

If state lawmakers wish to hike cigarette taxes, they must do so with the knowledge that the new rate is likely to generate a fraction of the new revenues they suspect and much more in the way of crime.

Today’s cigarette smuggling issues — on both sides of the U.S.-Canadian border — are the product of an addiction: Politicians addicted to the tax revenue generated by the sale of a legal product that people want.

Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Todd Nesbit is a Penn State economist and Mackinac Center adjunct scholar.


I haven't said much on the e-cigs. Simply cuz dose ain't the real thang. When I smoke, I wanna feel smoke go inside of me. E-cigs are for dose who smoke juz for the nic. But there are otha reasons why I enjoy smoking. I juz mentioned one of dose "otha reasons" in my post right above.

I don't blame countries like Australia banning e-cigs. I don't view em as ways of working around a ban. I think sneaking smokes inside the place is the best way of working around a ban.

If you gonna enjoy smoking, smoke a real version of a cig. Not a cheap-looking e-cigarette. It looks like a cig. But it ain't a cig.
The beauty of smoking is feeling rushes going into you when taking long and deep drags. The beauty of smoking is seeing the cig glow orange as I hold it or dangle it in my mouth. Especially if it's dark outside. There's certainly a beauty of smoking when it comes to seeing ladies smoke.

The beauty of smoking would be seen a lot more if we ever see revoked smoking bans. Or if you wanna see the beauty of smoking in a place where the owner ignores the smoking ban, dat's the place to be if you wanna see people enjoy their smokes and drinks.

Wednesday, January 13, 2010

Ban is not necessary


Does breathing secondhand smoke put nonsmokers at risk? Is there an acceptable level?

According to OSHA, there is. In matters of protecting the health and safety of employees, it is the responsibility of OSHA to not only set the standards, but to continually monitor the workplace to ensure employees are not being subjected to undue risk. To test secondhand smoke levels, OSHA measures nicotine levels. Nicotine is the only unique chemical in secondhand smoke. Other chemicals present in cigarette smoke can come from other sources such as carpet, furniture, burning foods in the kitchen or diesel exhaust from outdoors. The OSHA permissible exposure limit for an eight-hour work day, 40 hours per week is 0.5 milligrams of nicotine per cubic meter.

Based on that standard, how do businesses that permit smoking measure up?

The Cancer Society tested the quality of air for workers in New York state in restaurants, bars and taverns, bowling centers and bingo halls. The results ranged from 20 nanograms of nicotine per cubic meter to 940 nanograms per cubic meter. A nanogram is .000001 of a milligram. The highest concentration of nicotine in the worst of these locations was still 532 times safer than the OSHA limit of 0.5 milligrams of nicotine per cubic meter.

In St. Louis Park, Minn., secondhand smoke concentrations, as measured by the environmental health department, ranged from a low of 500 times safer than OSHA standards at a cafe, to a worst case of 15.4 times safer than the OSHA guideline at a liquor store.

Regarding secondhand smoke, OSHA's acting Assistant Secretary Greg Watchman wrote, "Field studies of environmental tobacco smoke indicate that under normal conditions, the components in tobacco smoke are diluted below (safer than) existing Permissible Exposure Levels as referenced in the Air Contaminant Standard ... it would be very rare to find a workplace with so much smoking that any individual PEL would be exceeded."

Government officials accept OSHA air quality standards in factories where workers are exposed to welding smoke at concentrations much higher and more carcinogenic than secondhand tobacco smoke.

Yet because of the strong negative emotions associated with smoking, the risks of secondhand smoke are exaggerated well beyond what OSHA and even the Cancer Society have measured and shown to be hundreds of times safer than OSHA standards.

Although air quality testing in restaurants and bars does show trace amounts of nicotine, by OSHA standards it does not constitute a health hazard justifying a government smoking ban.