Governor Pat Quinn signed a new $1 cigarette tax hike into law on Thursday, making Illinois’ cigarette taxes the 16th highest in the nation, up from the 32nd highest. According to the Post-Tribune, total taxes on cigarettes in the city of Chicago will now account for $5.57 of the cost of one pack and in suburban Cook County the per pack tax total will be $4.99.
Lawmakers opposed to the tax worry that Illinois residents will simply purchase their cigarettes in the border states, while retail associations contend it could cause 30 percent of businesses to fold due to the increased costs and subsequent loss of business.
Quinn raised the tax to save Medicaid in Illinois, and according to Illinois Public Media news, Quinn said “the legislation will help 60,000 people quit smoking, prevent 60,000 deaths from smoking-related conditions and keep 80,000 young people from starting to smoke.”
It is unclear how Medicaid will be funded if smokers simply quit and the revenue is lost forever.
Cigarette tafficking is another concern not taken into account.
A 2008 Mackinac Center for Public Policy Report shows a direct relationship between cigarette tax increases and cigarette smuggling, whether on a commercial basis or a “casual’ basis — smokers stepping across a border to purchase a cheaper carton.
And cheaper it is.
CSPnet.com reports the National Association of Tobacco Outlets sent letters to Illinois legislators warning them of the cross-border impact on retailers. With the tax increase, a carton of cigarettes will cost $6.20 less in Iowa, $9.85 less in Indiana, $13.80 less in Kentucky and $18.10 less in Missouri.
Four east central Illinois Democrats joined Republicans in voting against the bill.
In examining cigarette distribution records in the 48 contiguous states and comparing them with cigarette tax increases, the Mackinac report proves that smokers will indeed travel to save money on cigarettes lending credence to the fear that lost cigarette sales would hurt small businesses in Illinois.
As for commercial cigarette trafficking, one has only to read the Justice Department’s June 7, 2012 indictment of 10 individuals for the trafficking of untaxed cigarettes in Illinois to understand the potenial for increased criminal activity associated with the increased taxes.
The 10 indicted individuals paid more than $20 million to buy more than 10 million cigarettes without paying Cook County and State of Illinois taxes. Between cash seized when the individuals were arrested and the money seized from bank accounts, these individuals alone deprived the state and county of $1.6 million in potential tax revenue.
The Mackinac study also notes the social costs on increased cigarette taxes. While a casual smuggler with a vanload of untaxed cigarettes can make thousands of dollars, a commercial trafficker with a semi-trailer of cigarettes can make hundreds of thousands of dollars.
The increased profit-making potential naturally leads to other crimes such as hijacking, breaking and entering, theft, robbery and even murder. This data is evidenced by the other items seized by the Feds that included 161 firearms and 4.9 kilos of cocaine.
It remains to be seen if the benefits of the increased tax revenue will offset the costs of the black market it is undoubtedly creating.