Tax Analysts Blog

Don’t Cheat the Tax Man (Wink, Wink)

Posted on Jul 24, 2013

I have quit smoking, I think. Actually, I have been smoking electronic cigarettes, which apparently will not kill you. Sure, they are not as cool as the real thing. I can’t see James Dean or Humphrey Bogart puffing on an e-cig. But they won’t kill you. Unlike many ex-smokers, I do not care if you smoke. Actually, I do not care what you do as long as you do not hurt anyone or take their stuff. I also don’t care if you buy bootleg cigarettes.

I know I am not supposed to say that. We are a nation guided by the rule of law. And even when the law is stupid we are supposed to toe the line. But people in Washington are not heeding that advice. A great article in Reason (yes, the libertarian magazine) found that Washington lost $376 million in 2012 from people buying contraband cigarettes. Apparently, people want to smoke and find ways to avoid the asinine $3.02-per-pack tax in Washington. The most direct way is to buy a bunch of cigarettes in nearby Idaho where there are no Mayor Bloomberg-infused cigarette tax laws. The Idaho levy is a scant 57 cents a pack.

What the nanny-staters in Washington don’t understand is that prohibition, whether direct or indirect through the tax laws, doesn’t work. It did not work for alcohol. It did not work for marijuana. It will not work for cigarettes. Prohibition does not work because free men and women want to make their own decision about what they drink, smoke, eat, etc. And they act rationally. If they can buy cigarettes on the black market much cheaper, they will. Amazingly, 61 percent of all cigarettes sold in New York City are contraband. Why? The state tax is $4.35 a pack and the City adds on another $1.50. The black market causes your government to hire police officers whose sole job is to find bootleggers and put them in jail.

I would never encourage skirting the revenue laws -- but some revenue laws are not about raising revenue.

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