Cigarette smuggling is red hot in Illinois, and taxes are to blame

Illinois’ cigarette-smuggling rank jumped the most out of any state studied in a new report issued by the Mackinac Center for Public Policy.

Illinois’ smuggling rank among 47 states leapt to 14^th worst in 2013, up from 30^th worst in 2012 – a move of 16 places in the wrong direction. The study authors attributed this “sizeable increase” to recent excise-tax hikes.

A $1 Cook County tobacco tax hike took effect in March 2013, and a $1 state tobacco tax hike took effect in June 2012. The city of Chicago also increased its taxes.

With Illinois having one of the highest per-pack price points in the region, consumers have a strong incentive to purchase cigarettes out of state or to consume smuggled-in cigarettes that skirt the excise taxes. In fact, 1 in 5 cigarettes consumed in Illinois in 2013 was smuggled into the state, up from 1 in 18 in 2009.

Smuggling costs the state government more than $213 million a year in forgone revenue. But there are other costs as well; smuggling goes hand in hand with a host of unpleasant activities. As Mackinac’s Michael LaFaive and I pointed out in a May 2011 commentary in the Belleville News Democrat:

“Across the country, the opportunity by criminals to profit from trafficking tobacco has led to violence against people and police, including small-scale retail cigarette theft, murder-for-hire schemes, the growth of a counterfeit cigarette market and even the financing of Middle East terrorist organizations.

“Research shows smuggling occurs at higher rates when government increases prices—usually through a tax—and when the increased prices are significantly higher than in neighboring states.”

There’s no logic in making any government’s budget more dependent on an activity that it actively discourages. And unfortunately, the responsibility for the increased spending that is often connected to higher tobacco tax taxes can fall on non-smokers when this notoriously unreliable revenue source fails to deliver.

Thankfully, the budget focus in Springfield is on spending reductions – not additional tax increases that could invite unwelcome unintended consequences.

Kristina Rasmussen is Executive Vice President of Illinois Policy Institute.