UPS Decision Unlikely to Stop Cigarette Smuggling

October 25, 2005

In an effort to curb illegal cigarette sales, New York Attorney General Eliot Spitzer has compelled UPS to stop shipping smokes to U.S. consumers. From Reuters:

United Parcel Service Inc. on Monday said it will stop delivering cigarettes to consumers in the United States in an agreement aimed at reducing Internet access to cigarettes by underage smokers…

Law enforcement officials argue that selling cigarettes over the Internet leads to violations of state laws involving age-verification of buyers and also avoids the payment of taxes.

While this agreement may have been motivated partly by concern for kids’ access to cigarettes, it is clearly also motivated by tax. States have been rapidly losing cigarette tax revenue in recent years as the Internet has reduced the cost of smuggling and tax evasion.

Unfortunately, it’s unlikely that this arrangement will do much to cut cigarette smuggling. Why? It doesn’t address the root cause, which is high excise taxes. Today, New York has a cigarette tax rate of $1.50 per pack. Even without UPS, it’s likely that the chronic cigarette smuggling that plagues America’s big cities will continue.

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