Interesting article about cigarette smuggling in Michigan. This started in the late 1990s, when the Michigan legislature decided to pass the second highest cigarette tax in the nation. (New York had the highest cigarette taxes at the time.) Within months, people were starting to buy cigarettes in Toledo and other places across the border in Ohio and Indiana. Party stores, gas stations and other Michigan vendors – particularly those close to the borders of other states – began complaining that they were losing revenues to stores in the other states. Whereupon the Michigan legislature passed yet another law, making it illegal to purchase more than X/cartons in other states. And then the smuggling started.
How can you enforce laws like that? You really can’t without random stops. And so that’s what the Michigan State Police started doing – randomly stopping vehicles crossing the Ohio and Indiana state lines into Michigan, and checking for what is now “contraband.”
While the state legislature’s goals may have been well intended, the second law is a perfect example of a law that should not have been passed and now has adverse effects on state agencies and constituencies. When the first law, increasing the cigarette tax, was passed, the legislature should have considered the rational step that consumers would take in purchasing from neighbor states. If they really thought the goals of the law (whether they are to increase revenue or decrease smoking) were worthy of pursuit they should have accepted the fact that people may shop elsewhere. This is particularly true when your neighbor states do not feel as strongly about such an issue and thus do not have such a high tax. If the legislature did not like this effect then the initial law should not have been passed in the first place. Instead, to add another law seems to only add to the bureaucratic mess and now creates a challenging situation for the state police. I wonder what percent of cigarette smuggling the police actually catch. Further, I wonder if the amount of tax dollars spent on trying to catch smuggling is higher than the additional revenue that comes from this increased tax. If the latter is true, this is a perfect example of an overly regulated bureaucracy and the adverse effects it creates.
The only thing i can really think of which will cause a total aggregate reduction (and even possible elimination) of cigarette smuggling is a more uniform tax throughout the states. While a uniform tax with eliminate the motivation to smuggle, a uniform tax will likely never come to pass. States such as New York, with higher per capita incomes will lobby against lower tax rates while lower income states, such as North Dakota will want to adopt lower taxes on cigarettes. I guess it is possible to put a stamp or some sort of holographic marker on each cigarette carton, but it will be difficult to determine whether the cigarettes are for person use or for resale. I would think that it is not illegal to bring cigarettes across state boarders for personal use. This is an issue i haven’t really thought about and I can really think of no possible practical answers to correct the problem.