From cigarette smoke to smoking barrels
How sin taxes turn cigarettes from a bad habit into murder
By Douglas Schmidt
Whether by lung cancer or emphysema or heart disease, cigarettes kill thousands of people each year. A new congressional report adds one more cause of death to the list: terrorism. High “sin” taxes have created a profitable black market in cigarettes, and some of those profits are being funneled to terrorist groups.
According to “Tobacco and Terror,” a report by Rep. Peter T. King (R-NY), terrorist groups like Hezbollah, Hamas, and al Qaeda have been taking a share of the multimillion dollar black market in untaxed cigarettes. Experts estimate that the black market accounts for around five percent of cigarette sales in North America, or around 414 billion cigarettes each year. King blames the black market on “New York State’s refusal to enforce tobacco [tax] laws” and “access to the Native American Indian reservations for tax-free cigarettes.” However, the problem may actually be caused by the tax laws themselves.
Data from Yahoo! Finance puts the profit margin for American cigarette companies at an average of 14.6 percent. However, the profit margin for periodical publishing is over twice that, at an average of 32.7 percent. So why are terrorists not funding their organizations with black market copies of Entertainment Weekly? The simple answer is cigarette taxes.
Cigarette taxes in New York, New Jersey and Maryland are far higher than in Virginia and North Carolina. This inconsistency makes it very profitable to smuggle smokes from down south to the east coast, where they cost twice as much. According to the report, 1,500 cartons of cigarettes could net $50,000 in profits. In New York State, cigarette smuggling rings can rake in $250,000 a week.
New York loses around $500 million a year in lost cigarette tax revenue, but the lost funds are not nearly as concerning as where cigarette smuggling profits are being sent. In North Carolina, a smuggling ring sent more than $100,000 of its profits to Hezbollah. This funding would have been impossible without government-created cigarette taxes.
Even when smugglers are not connected to terrorist organizations, high cigarette taxes increase crime within the U.S. Just as prohibition made millions for bootleggers and gangsters, cigarette taxes are a gift to organized crime. As Sen. Ted Kennedy (D-Mass) warned Congress in 1977, cigarette smuggling results in "increasing violent crime: extortion and bribery, truck hijackings, armed robberies, serious assaults, and even murder." The next thirty years would prove him right.
According to a 2003 article in the New York Post by Murray Weiss, Sherwin Henry, 23, and Cody Knox, 19, were murdered over “cigarette-selling turf” disputes. Two other young men were shot but survived. In 2005, two more men were murdered in the Bronx. This violence never would have occurred without the black market that cigarette taxes helped to create.
Next month, New York State cigarette taxes will increase by $12.50 per carton, making the state’s cigarette taxes the highest in the country. The state’s smokers will be asked to pay $9 a pack. Undoubtedly, the resulting higher prices will increase consumer demand for illegal cigarettes and increase the profits that can be made by smugglers and terrorist organizations.
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