News Story

High Cigarette Tax Leads to Smuggling

A little more than one in every four cigarettes is smuggled into Michigan as the state’s cumbersome tax causes people to find cheaper alternatives, according to a study by the Mackinac Center for Public Policy.

Michigan’s $2 per pack tax ranks it tied for 11th highest in the nation with Alaska, Maine, Maryland and Arizona. New York has the highest tax at $4.35 per pack. Missouri has the lowest tax rate at 17 cents per pack.

The study found 26 percent of cigarettes were smuggled into Michigan. Overall, the study looked at 48 states as Alaska and Hawaii were not included.

The study cites two examples where Michigan men were accused of smuggling more than 56 million cigarettes into the state from July 2007 to July 2009. In both cases, the men spent an estimated $6.1 million buying the untaxed cigarettes.

Michigan also had the 5th highest “casual” smuggling rate in the country at 11.6 percent. A casual smuggler was defined as an individual cross-border purchase.

Michigan’s border states have significantly lower cigarette tax rates. Ohio taxes $1.25 a pack and Indiana has a 99 cent tax on packs.

“Lansing’s incoming legislators should be careful about looking to any type of taxation to solve the fiscal 2011 budget deficit, but especially so of cigarette taxes,” said Michael LaFaive, director of the Mackinac Center's Morey Fiscal Policy Initiative and the study’s co-author, in a press release. "It is tempting to raise taxes on cigarettes, but few people realize the vast array of unintended consequences, such as theft and violence, inflicted on job providers, consumers, police and sometimes innocent civilians.”

In August of 2009, Michigan Governor Jennifer Granholm pitched an idea to raise taxes 25 cents a pack. It didn’t happen.

Granholm Spokeswoman Liz Boyd didn’t return an e-mail seeking comment.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.