Wednesday, February 11, 2004

Governor Proposes Higher Cigarette Taxes (again)

Once again, Governor Granholm proposed raising the cigarette tax in Michigan. It seems that the policy of attempting to tax-out undesirable behavior is once again in vogue. Since no one (at least yet) is dumb enough to call for an outright ban of cigarettes, taxing them into oblivion seems to be acceptable.

However, what the governor and other policy-makers seem to be unable to grasp is the law of supply and demand. There will always be a demand, and the government is attempting to limit supply by increasing cost beyond the means of a number of people. But to policy-makers, that is the end of it. Those people will simply give up and go home. Not so in the real world. This is how a black market forms.

Just ask Sgt. Alain Giroux, a member of the Royal Canadian Mounted Police, who testified to the US Congress that a $1.50 per pack tax on cigarettes in Canada (Granholm is proposing increasing the MI tax to $2.00) has lead to an explosion of the cigarette black market. He estimates that 40% of Canada's cigarette sales are now on the black market. Of course, as with any black market that is forced to operate outside the protection of the law, organized crime and violence have flourished.

The same article points out that where cigarette taxes increase, cigarette sales decrease, but cigarette smoking does not decrease, which indicates the rise of the black market.

Not only do these policies increase the size of black markets, they then are used to justify even more government growth, as more police are needed to counter this new black market and the resultant increase in crime. Once again, the taxpayers get it stuck to them twice.

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