A very large number of cigarettes sold in the United States are smuggled in and out of states, presumably to avoid taxes on the product. People apparently are willing to break the law to avoid these taxes. In several states, the smuggling of cigarettes has become an epidemic, biting into a major source of revenue. In five states, smuggled cigarettes are a third above those sold legally.
According to researchers at the Mackinac Center for Public Policy, based on 2012 figures:
The top smuggling rates in the nation are New York (56.9 percent); Arizona (51.5 percent); New Mexico (48.1 percent); Washington state (47.8 percent); and Wisconsin (35 percent).
At the other end of the spectrum:
The top five out-bound smuggling states are New Hampshire (25 percent); Wyoming (22.3 percent); Idaho (21.3 percent); and Delaware (20.9 percent). This means that for every 100 cigarettes legally consumed in New Hampshire, 25 were smuggled to neighboring states, such as Massachusetts.
Not all the cigarettes are made by mainstream manufacturers:
The authors have cautioned lawmakers repeatedly that smuggling is not the only unintended consequence of imposing higher cigarette taxes. High rates also induce violence against people, police and property (including theft and truck hijackings) and the production of adulterated and dangerous products.
So, states are faced with weighing high taxes that feed state budgets against the potential of dangers criminal activity. The need to make the choice leans on the fact that law enforcement has had little effect on the problem. Based on earlier failures, there probably is no reason to believe that law enforcement problem will change. Todd Nesbit, a senior lecturer in economics at Ohio State University, said:
Our smuggling figures — and those of other scholars, too — still show a significant amount of cigarette smuggling in the United States, despite the best efforts of law enforcement to stem the problem.
The conclusions of the researcher are nearly as grim:
The average estimated magnitude of the smuggling rate for 2012 has declined 2.03 percentage points relative to our 2011 estimates, or by 8.2 percent. While that is good news there are still significant smuggling flows in total with the average smuggling rate of the top 10 in-bound smuggling states totaling 39.1 percent of consumption. The average smuggling rate for the top 10 out-bound smuggling states totals 12.8 percent of consumption. So, while the estimates as a percentage of consumption are down, they are still at significant levels.