Black-market cigarettes are costing many states hundreds of millions of dollars a year in lost tax revenue. And the lucrative, illicit trade is attracting violent criminal gangs that can be lethally ruthless.
The rewards, and the risks, of dealing in contraband cigarettes became quite clear recently in northern Virginia, says Capt. Dennis Wilson of the Fairfax County Police Department.
Undercover investigators working with his department "had two cases where contacts that we were working with had asked us to murder their competition," Wilson says.
The problem is that exorbitant taxes in New York state and especially New York City can add as much as $60 to the cost of a carton of cigarettes. No wonder criminals including "organized crime groups with ties to Vietnam, Russia, Korea and China" are getting into the business of buying cigarettes in lower-taxed states and driving trailers full of them to the high-tax states.
A Cato Policy Analysis warned about the problem of black markets and crime back in 2003, when the New York City tax was only $3.00 a pack ($30.00 a carton):
The failure of New York policymakers to consider the broader effects of high cigarette taxes has been a mistake repeated across the country in the stampede to maximize tax revenue from this demonized product. Too often, policymakers do not consider these effects in the erroneous belief that people do not respond to government-created economic incentives. The negative effects of high cigarette taxes in New York provide a cautionary tale that excessive tax rates have serious consequences--even for such a politically unpopular product as cigarettes.