Crime, Terror Benefit from Prop. 203 Cigarette Tax Hike in Arizona

October 16, 2006

On a cool evening in January 2004, off-duty Mesa police officer Jason Maddalozzo walked into a Circle K for milk and came out a hero.

Responding to cries from a terrified store clerk, Maddalozzo chased down and arrested a fleeing robber who, seconds earlier, tried to steal the store’s cigarettes with a six-inch blade and a plastic sack.

It’s a familiar story. But it highlights a puzzle: Why steal cigarettes? Why not razor blades, or Twinkies, or plain-old cash from the register?

The answer, of course, is taxes.

In recent years, federal and state cigarette tax hikes have turned a pack of cigarettes into a pot of gold for criminals, spawning a massive black market that makes it easy for thieves to quickly unload stolen smokes for cash.

Arizona lawmakers have boosted cigarette prices to around $4.00 per pack through tax hikes in the past decades. That’s higher than most states, and plenty of countries-all of which are open for smokers’ business at the click of a mouse.

That means high cigarette taxes don’t just encourage armed robberies at Circle K. They also send a stampede of smuggled cigarettes over Arizona’s borders.

“We have a big problem with counterfeit products and stamps and contraband,” said Sandra Schwartz, Administrator of the Arizona Department of Revenue’s Criminal and Civil Investigations section. Arizona officials have unearthed illicit cigarettes and tax stamps from nearby states and Mexico as well as from as far away as China and the Philippines.

Think thugs are the only ones smoking illegal cigarettes? Think again. Once cigarettes enter the black market, many end up in the pockets of otherwise law-abiding smokers who unwittingly purchase them at retail outlets across the state. Not to mention the cigarettes Arizonans routinely buy via the internet, where premium brands can be had for as little as $1.25 per pack.

All this illegal activity means sales of tax-paid cigarettes in Arizona have plummeted 12 percent just since the state’s latest tax hike in 2002.

On November 7, Arizona voters have a chance to make an already bad crime situation worse. Proposition 203 would raise the state’s cigarette tax from $1.18 to $1.98 per pack, the nation’s 7th highest. When heading to the polls, Arizonans should consider the law enforcement fiasco that would result.

Lessons from the Big Apple
Nowhere are these problems more on display than New York City. With a tax of $3, New York City’s cigarette bootleggers work the streets like crack dealers.

Before his murder in 2003, teenager Cody Knox used to sell bootleg smokes on the corner of Fulton and Nevins streets in Brooklyn. Like a savvy entrepreneur, Knox realized that by cutting prices, he could expand his territory. But other cigarette dealers showed Knox where price cutting leads in a high-tax black market-they stabbed him to death.

“Obviously he wasn’t happy about (the competition),” said Prosecutor Anna-Sigga Nicolazzi at the trial of one of Knox’s murders.

Knox’s is just one of many casualties of cigarette turf wars. By shifting business from corner stores to street corners, New York’s sky-high cigarette taxes have diverted billions of dollars from legitimate businesses and governments into the pockets of criminals. And in the process, average citizens have been exposed to violent crime.

Is that something Arizona wants to emulate?

The Terror Link
Illegal markets spawned by high taxes don’t just harm those who sell cigarettes. They’re a threat to everybody’s public safety. Organized crime and gangs have long prospered from the good intentions of those favoring high cigarette taxes. But in recent years a new threat has raised the stakes.

According to a senior intelligence analyst at the Bureau of Alcohol, Tobacco and Firearms, “The illicit sale of cigarettes by terrorist groups and their supporters has become a crucial part of their funding activities.”

With headlines like “Cigarette Smuggling Linked to Terrorism,” major newspapers have documented a startling fact. Every time lawmakers hike cigarette taxes in the name of public health, they give a helping hand to terrorist groups like al Qaeda and Hezbollah.

Advocates of high cigarette taxes have good intentions. They want to save lives. But if Arizona votes “yes” on Prop 203, the crime wave it triggers will do the opposite.

Patrick Fleenor is chief economist at the Tax Foundation in Washington, D.C. He is the author of a study of crime and cigarette taxes, “California Schemin’: Cigarette Tax Evasion and Crime in the Golden State.”


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