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Booming Black Market for Cigarettes On the Rise

Thanks to a wave of taxation designed to discourage smoking, millions of dollars are being made by sellers of illegal cigarettes.

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By Paul Gaita

04/11/14

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First, the good news: the number of adult smokers in the United States has declined by 13 percent in the last five years, due in part to a combination of local, state, and federal taxes that have raised the price of cigarettes.

That’s according to a National Health Interview Survey from the Centers for Disease Control’s National Center for Health Statistics, and they are encouraging numbers given how smoking remains a leading cause of death for Americans. But the wave of taxation designed to discourage smokers has also given rise to a booming black market for smuggled cigarettes that generates millions of dollars in sales for its participants and takes away an estimated $5 billion a year from state coffers.

For more than a decade, enterprising cigarette smugglers have traveled from cities where cigarette taxes are high – like New York, where the average price of a pack is $12 to $14 – and purchased thousands of dollars in cartons from states like Virginia and North Carolina, where cigarette taxes are more relaxed. The cartons are brought back to the major cities, where small business owners buy the contraband at a reduced price and then sell it back to customers at a cost that hovers near the legal price. Everyone draws a profit, except for the state. An estimated 57 percent of cigarettes sold in New York City are from black market sellers, which costs the state $525 million per year.

Lawmakers have attempted to cut into smuggling profits with legislation that has made the sale of cigarettes illegal unless the seller has first paid the state tax. Native American tribes in New York have also been prevented from selling untaxed cigarettes to non-tribe members and the city, along with the American Lung Association, has lobbied the U.S. Food and Drug Administration to establish a program by which cigarette packs can be traced from the manufacturer to the individual consumer.

There’s another reason why state and federal officials are interested in curbing the cigarette black market: to reduce the number of young smokers. A study done by the New York City Department of Health, along with economics professors from the University of Illinois at Chicago and Hunter College, estimated that the number of young smokers in New York would drop by 10 percent if cigarette smuggling was wiped out.

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