SB 768, by California state senator Kevin de Leon, would raise the tax on a pack of cigarettes from 87 cents a pack to $2. The increase, which comes on top of federal taxes, would raise the price of a pack of cigarettes to more than $8. Backers of the bill say the tax increase will save lives, save money, and generate $1.4 billion a year in revenue. But according to a new study, the tax hike will do something else—double the smuggling rate for cigarettes.
The California Foundation for Commerce and Education (CFCE) study says that the state will lose revenue as smuggling increases and lose as many as 11,000 retail jobs if California raises the tax to $2 per pack. California is still recovering from recession, and CFCE president Loren Kaye said that the job loss will be “a significant step backwards” and will disproportionately effect poor and minority communities.
One out of every five cigarettes is already smuggled into California, according to the federal Centers for Disease Control and Prevention, and California’s Board of Equalization, a tax agency. Another study, by the Mackinac Center, says that more than a third of the cigarettes smoked in California have been smuggled from other jurisdictions, and cites a strong correlation between “buttlegging” and taxation. According to the study, New York has the highest rate of smuggled cigarettes at 60.4 percent, and also the highest cigarette tax, $4.35 per pack, plus an extra $1.50 per pack in New York City.
An additional tax of $2 per pack will doubtless increase cigarette smuggling dramatically in California, which has the nation’s highest income tax, gasoline tax, and sales taxes.
Taxes often carry consequences that turn out different from politicians’ promises. That also fails to register with federal politicians, who are also planning to hike excise taxes on tobacco products by 93 percent.