I recall just a few short years ago when it was the subject of jokes to say that the endless push for higher and higher taxes on Cigarettes would lead
to a true black market like the narcotics industry. So, it's with no small amount of irony I bring this story to share. It would seem the largest
drug dealers in the world have seen the light...and profit...in lighting up.
Mexican cartels now trafficking … cigarettes?
Those Mexican crime syndicates certainly find their way into the news a lot, don’t they? When they’re not running guns from American
government sources, kidnapping children for prostitution or shipping tons of coc aine and marijuana through tunnels they’re busy corrupting the
government. But it seems that now they’ve found yet another avenue of profit, and just like in many states in the USA it popped up after the
government decided to jack up the tax rate on smokes.
I'm surprised it took them this long. While smoking, Missouri ranked among the lowest in the nation on prices. I quit in 2010 (April 15...for that
little touch of meaning to an otherwise bad day in fact
) although before I quit I enjoyed buying $20 cartons in Missouri to smoke cheap in
California or New York while the locals paid $40-$60 or more for the same 10 packs!
The new tax has a pack of smokes in Mexico going for an average of 35.5 pesos (currently $2.69 US) as compared to 20.5 pesos ($1.69) on the black
market. And as more and more buyers flee to the cartels for their fix, the result is pretty much the same as we’ve seen in Illinois and New York –
among other states. The anticipated tax boom fails to materialize in the government’s coffers and instead winds up financing criminal
It figures though that I only tried legally buying a carton in Mexico once. Just once. I was so happy with myself too.. It was years before I quit but
I walked over the border at Progresso, Texas and got myself a carton in the Duty Free for what seemed like Pennies on the dollar. My happiness lasted
all of about 100 yards...when the Border Agent at the desk proceeded to charge me full tax rate, per pack to give Texas and Uncle their due. Can't
win for losing.
It seems everyone is in on the act sometimes....
But this may not be bad news for everybody. As we’ve discussed before, there are a couple of international agencies who are very interested in
seeing cigarette taxes go up around the world, primarily so they can get a cut of the action. They are the United Nations and the World Health
So what exactly is the act everyone is in on? Well, lets look at the US market with taxes. It's easy to assume that taxes are taxes and they're all
about equal. Nothing could be further from the truth, as I saw on Smokes, Diesel and many other things while traveling the nation daily for years. In
this case, lets see why Cigarettes make a profitable black market:
Amazingly, the tax rates vary SO much per state that real and measurable profit can be made without even getting into the Mexican Cartel side of
things and that speaks volumes to the drive to alter behavior by the tax code. Here is how it actually results in counter price from the top to the
lowest 5 in actual price paid.
Combined Total Tax Rates before Retail Price (Top 5)
Combined Total Tax Rates before Retail Price (Lowest 5)
- New York City ($1.50) - New York State ($4.35) = $5.85 per Pack
- Chicago ($0.68) - Cook County ($2.00) - Illinois ($1.98) = $4.66 per pack
- Evanston ($0.50) - Cook County ($2.00) - Illinois ($1.98) = $4.48 per pack
- New York State ($4.35) - Excluding New York City = $4.35 per pack
- Anchorage ($2.206) - Alaska ($2.00) = $4.206 per pack
- New Mexico ($1.66) - No local taxes = $1.66 per pack
- Delaware ($1.60) - No local taxes = $1.60 per pack
- Pennsylvania ($1.60) No local taxes = $1.60 per pack
- Minnnesota ($1.60) - No local taxes = $1.60 per pack
- Cuyahoga County ($0.345) - Plus Ohio ($1.25) = $1.595 per pack
So with all of the above numbers taken into account, I wonder if this isn't a case of a problem entirely of our own making? I recall nearly 20 years
ago, when the push for taxing cigarettes first began. It started as an argument to cover the medical costs of smokers. Oddly, I missed that help when
my father passed in 2010 of Smoking related lung cancer, but okay, someone
must have gotten the help. Now though, in many reports, it's
outright a case made to modify behavior by tax.
Perhaps it's just me here, but I believe the cause or it's merit is irrelevant. When cigarettes are outlawed or finally taxed to the point of
actually reducing demand to negligible levels, the states will maintain that cash flow. It will simply come from things non-smokers are doing without
such crushing taxes transferred over now. In this way, taxes are never good, no matter the justification or stated goal. Money is all it ever boils
down to, IMO.
In this case, money for people like the Mexican Drug Cartels is one major aspect. When Cigarettes actually become proiftable enough to take space and
effort along side the traditional products of such groups. We have scary times and scary use of the tax code, to my thinking.
Anyone support taxes being used strictly to manipulate behavior? I'd love to hear the reasoning and how it should be acceptable?