Black market growing as states mull cigarette tax increases

The Oregon state legislature is in the midst of debating House Bill 2275, a piece of legislation that consists of a proposed increase in the tax on cigarettes. The proposal would see the cigarette tax increase from $1.18 to $2.18 per pack.

In 2004, the rate dropped by 10 cents to its present day $1.18 when Oregon citizens voted against an income tax increase. In 2007, voters also rejected a proposed 84.5 cent increase on each pack; the revenue would be transferred to expand health care programs for children.

The legislation was sponsored by Democratic State Representatives Mitch Greenlick and Michael Dembrow and Democratic State Senator Elizabeth Steiner Hayward. The measure is still holding public hearings.

Oregon ranks 29th in the United States with its cigarette tax rate. According to the Campaign for Tobacco-Free Kids, the state of New York is ranked first in the country with the highest tax rate on cigarette packs with $4.35. This is followed by Rhode Island ($3.50) and Connecticut ($3.40). Last in the nation is the state of Virginia with only a 50-cent tax on cigarette packs.

It has been widely studied that high taxes or prohibitions on items create a black market, which eventually leads to crime. The Cato Institute published a report in 2003 that looked at how cigarette taxes in New York have led to an increase in both the black market and crime.

“Proponents of high cigarette taxes portray them as innocuous levies that improve public health. Yet those taxes have long been known to have a dark side,” wrote Patrick Fleenor of the Tax Foundation. “Since the first state cigarette taxes were imposed in the 1920s, black markets and related criminal activity have plagued high-tax jurisdictions. Such activity has proven to be resistant to law enforcement curtailment efforts.”

Meanwhile, a Chicago Alderman held a news conference last week that urged the Illinois General Assembly and the Cook County Board of Commissioners to reduce taxes on cigarettes in order to stop crime, according to DNAinfo.com.

“You can go to the front of some stores and there are literally people out there fighting over who is going to get to sell a guy two cigarettes for a dollar. This is not the type of activity I want to see in my ward,” said Alderman Jason Ervin. “We need to roll it back to a point where people don’t feel it’s necessary to go outside the community to buy cigarettes.”

Ervin added that the cigarette tax has not led to a boost in revenues, smokers are still smoking and users are heading outside of the county and state to acquire their cigarettes. “These are the individuals who end up buying loose cigarettes one or two at a time. When you’re arguing over dollars, violence follows.”

What does this have to do with the Beaver State? The Northwest Watchdog published an article Tuesday that looked at how Oregon’s cigarette taxes are gradually leading to a black market of smuggled substances and violence.

The report cites a woman selling cigarettes out of her trunk in Washington State, while a Virginia man admitted that he hired a hitman in order to take out an individual with who he had a disagreement with over the white sticks.

Although the Oregon lawmakers have the good intentions of both encouraging healthy lifestyles and raising government revenues to fund social programs, the opposite has occurred and violence has ensued.

Just north of Oregon, 35 percent of the cigarettes in Washington are contraband and either came from cheaper tax states, such as Oregon, California or Nevada, or from the international market. However, this could change as the legislators mull the one dollar boost in the state’s cigarette tax.

“It doesn’t take a rocket scientist to figure out that people in Washington are buying their cigarettes in Oregon,” said Mike Gowrylow, a Washington state Department of Revenue spokesperson, in an interview with the watchdog group. “There’s a big incentive for people to make a run for the border and stock up on cigarettes.”

Oregon experienced an increase of roughly $9 million to $180 million in sales of taxable cigarettes when Washington State tacked an additional dollar on its cigarettes three years ago. This number was significantly higher than its neighbor’s $146 million.

As the economic collapse of the U.S. worsens, the shadow economy, including drugs, prostitution, working construction for a day for cash and even walking children to school, is roughly a $2 trillion economy, according to Bloomberg News.

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