Cigarette Taxes Burning Up Tax Dollars

It seems we’ve yet to learn our lesson regarding the futility of prohibition. The limitation of sinful but otherwise victimless behavior results only in the ballooning of government bureaucracy and the suppression of economic activity.

Minnesota presents us with a prime example. From the Minneapolis Star Tribune:

Less than two years after Minnesota raised its cigarette tax to one of the highest in the country, cigarette smuggling has become a growing business in the state. Now officials want more money to combat the problem.

Minnesota Department of Revenue officials seized or assessed untaxed tobacco products in more than 40 percent of the 374 retail inspections conducted through the first three quarters of last year. Before the cigarette tax jumped $1.60 per pack, or 130 percent, retail inspections found untaxed tobacco products only 8 percent of the time. The agency typically conducts 700 inspections a year.

It’s no wonder why increasing taxes to such a draconian level would invigorate the black market. Artificially hiking costs doesn’t change demand. When suppliers exist willing to meet that demand at a price reflecting true economic value, you’re going to see a black market.

Rather than reconsider the wisdom of the tax hike, the state reacts as states typically do, doubling down on the policies which created the problem. The Tribune continues:

Acting on the recommendations of a 2014 tobacco enforcement report, the agency said it needs $1 million annually for 11 new inspectors to crack down on cigarette smugglers and retailers selling untaxed tobacco products. Officials also want enhanced penalties for lawbreakers and a new state license for tobacco retailers that would give the tax agency authority to revoke permits.

In other words, they want to spend tax dollars to fix a problem created by raising taxes. Sounds like par for the course.

Those 700 inspections per year don’t come cheap. Those are government resources dedicated toward the prevention of economic activity rather than the preservation of individual rights – spending money to prevent people from making money. That’s the very definition of counter-productive.

(Today’s Fightin Words podcast is on this topic available here.)