Taxing Cigs

For John, BLUF:  Jail is not the solution to all problems.  Nothing to see here; just move along.

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Today's edition of The Boston Globe has an article on cigarette smuggling.  It could well have the sub-headline, "Officials just want to put more folks in jail."

Don't we understand that it costs money to put people in jail.  Worse, it tags people as criminals, so they are less likely to get a legit job upon release, but are more likely to have picked up criminal skills while in jail.  Why do we believe that our high incarceration rate is helpful to "life, liberty and the pursuit of happiness"?♠

It is an interesting article, written by Mr Kevin Hartnett, who does the "Brainiac" blog for the "Ideas" section of The Boston Globe.  And, his EMail is kshartnett18@gmail.com.

The article was well written and covers the territory.  The problem is that we are seeing some unproductive thinking on the part of the Commonwealth.  For example,

Though infuriating to smokers, high taxes seem to work:  The state collects $660 million a year from tobacco taxes, and studies have shown that higher prices do reduce overall smoking, especially in kids.  In the months after the July tax increase, official cigarette sales in Massachusetts dipped 15 percent compared to the year before.

How much imagination does it take to figure that the 15% drop in sales was largely made up for by cig smuggling?

Of the cigarettes smoked in Boston, they [RTI International] estimate, nearly 40 percent arrive here through the black market.

Toward the end of the article is this insightful paragraph by Mr Hartnett:

But smuggling is also a matter of raw economics, and given the money now at stake, some economists are skeptical that better enforcement holds all the answers.  “If there’s a way to make money, they’re going to figure it out,” says Philip DeCicca, an economist at McMaster University in Ontario, Canada, who studies how cigarette taxes affect smoking rates and buying patterns.  “I think sometimes legislators don’t think through the ways people can avoid these things as much.”  (The Department of Revenue’s chief economist, Kazim Ozyurt, made a similar point in a presentation before the Illegal Tobacco Commission in November:  “Tax avoidance appears to be ‘unavoidable’ in general,” one of his slides began, before detailing ways to mitigate it.)

While a lot of folks deny the insights of economics (look at all those Soviet folks and fellow travelers), at the end of the day we are homo economicus.  We need to be open to new insights here.

When we were stationed in Naples, Italy (mid-1970s), the local Neapolitan Police cracked down on the Cigarette Smugglers.  As a result, the Smugglers went on strike, and broke the crackdown.  What happened?  The Police became concerned that the Smugglers were moving into more violent crime.  We need to be asking a lot of "what if" questions before we execute new policies.

For example, do we need to increase our prison population?  Do we wish to increase our average citizens involved in petty crime (buying unstamped or improperly stamped cigarette packs)?  Do we really think that a price hike will more likely deter youth smoking or incentivize young smokers to find cheap cigs?  Do we think that Commonwealth revenues based on sin, which we are trying to diminish, represent stable sources of income?  What if there was a credible report that smoking reduced male libido, coupled with a new, fast acting patch?  What would the General Court do if cigarette tax revenue collapsed?

Regards  —  Cliff

♠  Our incarceration rate of 716 people in jail for every 100,000 of population puts us at the top of the global list.  On the other hand, a list of incarceration by US State, but not including the District of Columbia and other locations, Massachusetts is 48th, with 218 incarcerated per 100,000.  All of these figures are a little dubious, but they show a trend.  For reference, Canada is 123rd in the world, with 117 incarcerated per 100,000 in population.  Of course the Canadians get an advantage by exporting trouble makers like Justin Bieber to the US.