Tax Hike on Smokes Could Increase Cigarette Smuggling

Updated: 01/22/2013 11:01 PM KSTP.com By: Steve Tellier

Governor Mark Dayton is asking for a 94-cent increase in the state's cigarette tax, which he said would bring in an additional $370 million in new revenue. The request was made as part of Dayton's budget proposal, announced on Tuesday.

But a cigarette tax hike could also increase one kind of crime that's already burning a hole in the state's budget.

"When I first started smoking, they were 65 cents, and I've been telling myself every year, 'I'm going to quit. I'm going to quit," said Samuel Ross, who has been a smoker for 40 years.

Gov. Dayton is hoping the time to quit has finally come, for Ross and thousands of others like him.

Right now, $1.58 of every pack of cigarettes sold in Minnesota goes to the government. Gov. Dayton wants a hike of another 94 cents, for reasons both fiscal and physical.

"In state after state, when the tobacco tax has been raised, we've seen the amount of youth smoking go down markedly," said Bob Moffitt, communications director for the Minnesota chapter of the American Lung Association.

Anti-smoking advocates, and Gov. Dayton, insist the tax increase will decrease smoking rates, while also pumping money into state government.

"This is going to be something that really saves Minnesota a lot of money in the long term," Moffitt said.

But all the revenue the governor expects may not materialize.

Minnesota brought in $296 million in cigarette tax revenue in 2011. But the Mackinac Center for Public Policy, a conservative, free-market think tank, estimates that one out of five cigarettes smoked in the state that year was smuggled in from other states with lower tax rates. That translates into about $58 million in tax revenue that should have gone into the state's coffers, but never did.

The ATF says when cigarette taxes jump, the losses from smuggling jump as well.

But advocates say the loss in human lives is a far greater concern.

"If we can reduce the amount, particularly of youth smoking, the saving to Minnesotans, all Minnesotans, is going to be enormous," Moffitt said.

Cigarette Tax Rate by State