Rumors are once again rumbling in the cash-starved, big spenders in California's legislature to raise tobacco taxes. But does this work? History says that not only does the tax hike rarely bring in more money to the state the hike also causes more crime as criminals move in with black market good s at cheaper prices.
Once again the denizens of Sacramento are looking to a huge hike in taxes. Earlier this year Senator Kevin de Leon floated a scheme to raise taxes by two dollars a pack for cigarettes.
Democrats claim that this will bring in millions of dollars in new taxes a year but other states have tried this and found that instead of bringing in what legislators thought would come in all they got was more black market crimes and cigarette smuggling.
In 2012, for instance, the State of New York raised cigarette taxes yet still had a $130 million shortfall. The new taxes did not bring in what Empire State legislators projected.
But this is the least of the problems that large hikes in tobacco taxes bring to a state. The biggest problem is that it also brings a hike in crime.
Recently the Los Angeles Times posted the news that a new report shows that at $5.84 per pack, one in five packs of cigarettes sold in California were smuggled into the state and sold without the legally assessed taxes.
Worse, the report says that, "Raising the price to nearly $8 would almost double the smuggling rate to 39%, about 440 million cigarettes a year, the study says."
The report was conducted by Andrew Chang & Company and titled, "The State and Local Impact of Tobacco Prices on Smuggling and Black Market Tobacco Sales."
The report paints a very dangerous picture illustrating a hike in crime and other problems.
One finding says that, "By failing to account for smuggling, proponents overestimate tax revenue from tobacco products by $500 million annually due to smuggling caused by the tax increase."
It also points out that a tax increase will likely have the "unintended consequence of increasing organized crime in California."
The report also says that while crime will increase throughout the state, "the burden of increased crime would fall on Los Angeles County and the Bay Area."
Then there are the other economic consequences.
"In addition, lost legitimate retail sales will eliminate approximately 11,000 direct retail jobs. Note that these 11,000 jobs lost are due only to the loss in retail sales of legitimate tobacco sales. It does not account for any loss in retail jobs due to overall decrease in tobacco consumption from increased prices in legitimate sales via the proposed tax increase," the report says.
Senator de Leon's tax hike plan is not a good plan for California.