What Tobacco Tax Advocates Can Learn From American Drug Policy | Keith Humphreys: As recently noted by drug policy expert Dr. Peter Reuter, anti-tobacco advocates see the smoking rate as the only index of public policy success. When it goes down -- as it virtually always will in response to higher taxes -- they cheer unreservedly. I passionately want more Americans to kick the smoking habit. But I worry about how extremely high tobacco taxes expand black markets, which in turn can trigger draconian law enforcement responses.
In New York City, a legal, fully taxed pack of cigarettes costs $10-15; Chicago prices are only slightly less. Working class and poor addicted smokers (i.e., most smokers) thus face great temptation to enter into the black market. Columbia University Professor Shelley Cantrell documented that "the $5 man" -- a street seller of untaxed black market cigarettes -- is now a pervasive feature of life in low-income New York City neighborhoods.
Extremely high cigarette taxes are widely evaded. Professor David Merriman of the University of Illinois at Chicago organized teams of apparently non-squeamish research assistants to gather discarded cigarette packs from garbage cans and sidewalks in 100 Chicago neighborhoods. He discovered that 75 percent had no tax stamp, indicating a black market or grey market provenance.