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Governor Mark Dayton is asking for a 94-cent increase in the state's cigarette tax, which he said would bring in an additional $370 million in new revenue. The request was made as part of Dayton's budget proposal, announced on Tuesday. But a cigarette tax hike could also increase one kind of crime that's already burning a hole in the state's budget.
Minnesota brought in $296 million in cigarette tax revenue in 2011. But the Mackinac Center for Public Policy, a conservative, free-market think tank, estimates that one out of five cigarettes smoked in the state that year was smuggled in from other states with lower tax rates. That translates into about $58 million in tax revenue that should have gone into the state's coffers, but never did.
Cigarette taxes have been in the news lately, and not just because politicians keep raising them. What’s new is that state and local levies have grown so onerous in some parts of the country that they almost could be called “prohibition by price.” And like other forms of prohibition, this one has led to a spike in smuggling-related criminal activity as smokers turn to illicit distribution channels.
The Mackinac Center for Public Policy just completed its third set of estimates for tobacco smuggling in 47 of the 48 contiguous states, this one based on data through 2011, with previous editions released in 2008 and 2010. Each statistical model matches actual legal sales against predicted state consumption based on reported smoking rates, with the difference representing the Center’s estimate of smuggling.
Michigan’s smuggling rate is up 12.7 percent since the Center’s previous study of 2009 data was published. Despite the increase, Michigan retained its rank as the 10th highest smuggling rate among the 47 states in the Center’s model. The big changes in smuggling rates and ranks occurred elsewhere in the country.
The Center found that New York currently holds the top position as the highest net importer of smuggled cigarettes in 2011, with smuggled cigarettes totaling a staggering 60.9 percent of the total market. Not coincidentally, New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.
Other notable results from the Center’s model include:
•Massachusetts increased its cigarette tax from $1.51 to $2.51 per pack in 2010, and in 2011 became an even larger market for smugglers, advancing 13 spots since our 2010 report.
•Florida moved up 12 places on the smuggling index after hiking cigarette taxes in 2010 from 33.9 cents per pack to almost $1.34.
•Utah moved up 10 positions. You guessed it — the Beehive State increased is cigarette tax from 69.5 cents to $1.70 in 2011.