Shocking Report: Higher Tobacco Taxes Increases Black Market Tobacco Sales!

While the US Congress and State Legislators gleefully consider increasing the punitive tobacco taxes on Americans, here’s some news from Germany which should give them pause. It won’t, but it should.

According to a new German customs report leaked to the press, raising tobacco taxes only encourages smokers to buy illegal cigarettes. While the report focused on cigarettes, its findings should logically apply to smokeless tobacco, snus, cigars, pipe tobacco and the rest.

The report found that smokers did not respond to government health and budget policies by quitting smoking, but by “turning even more deliberately to illegal cigarettes.” German customs officials found that the increased demand for smuggled tobacco not only meant that illegal cigarettes were easier to get, but that children and young people had easier access to them.

Did anyone bother to tell Matthew Myers or the other anti-all-tobacco extremists supposedly motivated by “saving the children”?

The report also surmised that since illegal cigarettes are not necessarily subject to quality control, illegal cigarettes might also pose greater health risks than legal but astronomically taxed cigarettes. That is a little shocking; when did “quality control” during the manufacture of cigarettes ever equate to reduced health risks to the smoker?

One has only to look at the new graphic warning labels FDA is attempting to require on each US cigarette pack to know that “quality controlled” cigarettes only lead to a horrible, agonizing death. How much quicker will illegal cigarettes kill a smoker? Worse, will the illegal so-called second hand smoke kill non-smokers quicker and more painfully as well or just smell worse? Where is the Geneva Convention when you need it?

As for snus, 3 of the 4 warning labels currently required by FDA are absolute falsehoods. The statement Nicotine is Addictive is certainly true. The other three will only serve to falsely scare cigarette smokers looking for a safer alternative to keep on smoking…..or try Big Pharma solutions like pills, gum, and patches. If they don’t become deeply depressed or commit suicide using Chantix, the 84%+ failure rate of nicotine gum and patches will have these poor nicotine dependent folks back on cigarettes sooner than later.

Higher Tobacco Taxes Equals Less Tobacco Taxes Collected

Ironically, or perhaps inevitably, justifying punitive tobacco taxes as a public health remedy or even admitting the true goal; to rape the wallets of the politically incorrect and demonized tobacco using minority to fill the public coffers, has led to just the reverse.

As the world economy continues to spiral down in collapse, the financial reality in Germany is that higher tobacco taxes have led to decreased tax revenue. The number of cigarettes sold legally in Germany between 2003 and 2009 sank from 133 billion to 87 billion. No one is even pretending that the actual smoking rate has decreased by anywhere near that percentage.

With German children now having easier access to cigarettes through the robust black market and no sane adult smoker volunteering to poll takers that they purchase illegal untaxed cigarettes, the actual number of smokers is much higher than previouly assumed.

When it comes to tobacco, this zero-sum mentality; the naive belief that the same number of people will legally purchase a product after the taxes have skyrocketed past a certain point, gave us the PACT Act and Tobacco Control Act in the United States.

Now-disgraced exhibitionist and ex-Representative Anthony Weiner’s (D-NY) main reason for authoring the PACT Act cited New York’s loss of billions of dollars in tobacco tax revenue to the Seneca Nation. By Treaty, the Seneca Nation is not required to collect State taxes on tobacco or pretty much anything else…at least for now.

The US Government is still hard at work trying to undo the now-inconvenient treaty clauses their 19th century counter-parts imposed on Native Americans. Back then, the memory of the American Revolution and Taxation without Representation was a lot fresher in the minds of legislators than it is today.

Weiner and his ilk never considered more smokers would buy taxed cigarettes and avoid the multi-hour drive to the Seneca Tobacco Store or be forced to wait for their cigarettes to arrive by mail if given the choice. Once tobacco taxes climbed high enough to reach that tipping point, untaxed cigarettes; legal and illegal, were the only affordable option for tobacco users.

Unfortunately, Weiner was and is not alone in his zero-sum mentality nor is the United States the only nation whose elected (or non-elected) leaders subscribe to it. Every single tax and user fee in effect today is based on the theory that legal consumption will remain the same and so tax revenue will increase. Especially with punitive taxation, that is often not true but a lesson never learned….especially not with tobacco. Sadly, its also a lesson Sweden has never learned when it comes to their wonderful snus.

As the Snus Tax rises……

Sweden’s current number of regular cigarette users is estimated at approximately 11-12%; the lowest number of smokers in the entire EU. Several years back, Sweden decided to raise the tax on snus dramatically for two years in a row. This resulted in an increase in the number of cigarette smokers. Nicotine is highly addictive. Cigarettes are most effective nicotine delivery system ever invented.

Once the price of Swedish snus had risen to near-cigarette prices, especially younger Swedes simply switched to cigarettes. Snus may be 99% less harmful than cigarettes to a smoker, but given the choice it’s all about the nicotine.

The Swedish government came to recognize this and lowered snus tax increases as compared to cigarettes. The number of regular Swedish smokers dropped as snus again became the more economical choice for the nicotine dependent.

Unfortunately, this policy didn’t last very long. For a short period, the snus manufacturers absorbed as much of the subsequent increases as they could. Since the tax on snus is weight-based, they then began lowering the amount of snus in each can to keep the retail prices stable.

Five years ago, a typical can of loose snus contained 50 grams of snus. Today, that has dropped to a high of 45 grams and a low of 40 grams.

Five years ago, each pouch of regular portion snus contained one gram of snus and each can contained 24 portions: 24 grams of snus. Today, the number of portions in a can of Scandinavian snus ranges between 20 to 22. Some still offer 24 portions but they don’t don’t weight one gram each anymore.

With few exceptions, a can of regular portion snus today contains at most 22 grams of snus; some as low as 18 grams. Mini-portion snus is still lower in weight while no cheaper. [Author’s note: I am generalizing for the sake of simplicity. There were and are a few exceptions. I know what they are; no need to spam me with examples. These exceptions do not a rule break.]

Effective 1 Jan 2012, Sweden will most likely be increasing their snus tax by around 12%. The cigarette tax will also be raised to discourage an increase in the number of smokers because of the snus tax increase. This doesn’t seem to be a great strategy considering the German customs report.

Norway has already raised their tax on snus this year. In Finland, where the sale and import of Swedish snus is prohibited and in Iceland where even the use of Swedish snus is forbidden, huge black markets thrive.

As for the US, I’m looking at a now-antique listing of State tobacco taxes as of 1 April 2011. Pretty much useless today.

At the Federal level, I’m not even going to dignify the so-called “Saving Lives by Lowering Tobacco Use Act” attached as Section 3 to S 1403 beyond saying it proposes raising the tobacco tax on loose snuff and snus by 1774%; portion snus and snuff by $0.10 per portion.

They didn’t forget cigarettes, ryo tobacco, pipe tobacco, small cigars, e-cigarettes, e-liquid, dissolvables, and the rest either. From the most harmful tobacco products to the least harmful cigarette alternatives, its just tax, tax, and more tax.

Here is the very short version of what this nonsensical tobacco tax rider wants to accomplish courtesy of noted anti-cigarette/pro-nicotine dependent advocate Bill Godshall. Read it at your own risk or if your blood pressure needs a boost.

Those who don’t learn from tax history are doomed to repeat it

I’ve written a lot about the folly of attempting to control societal behavior through taxation or legislation. Robert Hubbard, both in his SnusCentral.org column The World According to Feck and in the brilliant The Snuff Taker’s Ephemeris periodical, has recounted the historical failure of tobacco taxation multiple times.

Government solutions still remain the same and as anti-intuitive as they were 500 years ago when tobacco was first introduced to Europe.

In the real world, drunk driving and alcohol-related illness; even violence, are more destructive to more Americans than second hand smoke ever could be. Historically, every time that outrageous punitive alcohol taxation or bans are attempted, they ultimately fail because the majority of the citizens, myself included, enjoy the occasional drink.

Tobacco is different because tobacco users are in the minority today. I’ve also discussed De Tocqueville’s warnings of an American Tyranny of the Majority in past articles. A lot of people have in the last 170 years or so since he wrote it and on a number of issues other than tobacco. It’s a real threat to all democratic forms of government.

And so the wheel turns and history repeats itself…….

While the US Postal Service is now on the brink of bankruptcy, the PACT Act bans legal adult tobacco users from having tobacco products delivered by US Mail. So much for that revenue stream. I wish I had bought stock in UPS pre-PACT. I wonder how many in Washington did.

As the deficit climbs and especially if that legislative garbage sarcastically called the Saving Lives by Lowering Tobacco Use Act is ever enacted, the result will be exactly the opposite. The German customs report on illegal cigarette smuggling is just the latest and far from the first to make that point clear.

While marijuana proponents in the State and Federal Government argue that legalizing marijuana will result in new tax revenue, deal a heavy blow to the drug cartels, protect the public health and lower law enforcement costs, they conveniently overlook the hypocritically opposite approach being taken with tobacco. At the rate we’re going, marijuana and even more may have to be legalized just to help fund enforcement of the War Against Tobacco.

Unless blind anti-tobacco extremism and all that fuels it isn’t defeated by common sense, logic, and fairness then prepare yourselves for the rise of the Illegal Tobacco Lords. Prepare for major increases in other taxes to make up for the loss of tobacco tax revenue and the cost of fighting the War Against Tobacco.

Prepare for a black market the likes of which will make Prohibition pale in comparison. Prepare for more violence and crime equal to that experienced from today’s organized crime and drug cartels.

You had best prepare your children as well. According to the anti-tobacco extremists and self-interested, this war is all about saving them. We know different; in their hearts, the anti-all-tobacco extremists do too. They just don’t care.

Enjoying my Swedish snus while I still can,