Cigarette Taxes and Smuggling in New Hampshire

Michael Lafaive and Todd Nesbit of the Mackinac Center have updated their study on cigarette taxes and smuggling (pdf).  I don’t need to summarize this study because the good folks at Mackinac have already put together a excellent video summary.  This is required viewing for you out there that believe a few cents don’t influence people’s behavior . . . turns out it will drive a man through a brick wall, literally.

Additionally, since New Hampshire has more than tripled the cigarette tax to $1.78 per pack from $0.52 only five years ago, the study does not yet fully reflect the impact of these tax hikes.  For instance, it was recently reported that cigarette sales in Maine are up 5 percent in the first half of 2010:

With New Hampshire no longer the land of cheap cigarettes, more Mainers may be buying their smokes at home rather than venturing across the border, said Mike Allen, research director with Maine Revenue Services.

“We talked to some of the wholesalers and they indicated they were seeing a shift in their sales from New Hampshire stores along the border to Maine stores along the border,” Allen said. “That reinforced for us a little bit that that may be what’s going on.”

As such, with higher cigarette taxes, New Hampshire can expect commercial smuggling into the state to increase while casual and international smuggling to decrease.  Not only will this reduce cigarette tax revenue, it will mean lower business taxes across-the-board as stores and their supplies see reduced sales.  In the long-run, the overall impact may cost New Hampshire more in lost business taxes than was raised in the higher cigarette tax . . . wonder if we’ll ever see a study like that?