Tobacco tax plan lights up controversy - Bill Clinton's plan to quadruple tax on cigarettes

0 Comments | Insight on the News, Nov 8, 1993 | by Brian Robertson

Duty-free sales and exports have risen almost tenfold during the same period, and studies show that one in six packs of cigarettes consumed in Canada last year was contraband. If these smuggled cigarettes are factored in, according to one widely quoted stody, "it appears fiscal policy has proved ineffective in reducing the comsumption of tobacco."

With the most recent steep increase in Canada's federal tax on tobacco, in 1992, the government found that it yielded less than two-thirds of the revenue forecast; the rest was swallowed up by the growing black market. The government in Ottawa, relying on tobacco taxes to fight its deficits, has cracked down on black market sales, but with little success. The financial incentives for those involved in the illegal trade are too great, and government resources for enforcement too limited. Cigarette-related crimes have soared including robberies and hijackings. In September there was an attempt on the life of the mayor of Cornwall, Ontario, who had tried to shut off the flow through his border city.

A troubling by-product of Canada's tobacco tax has been the creation of a criminal subculture among Cannadian Indians who live near the border. Because Indian reservations are, by law, semiautonomous, there is little that customs officials can do to stem the flow of duty-free cigarettes from the U.S. into Canada through this route. Canadian smokers pour into the reservations seeking cheap smokes, many reselling them for a profit on the streets.

Most Canadians wink at cigarette smugglers as Americans winked at bootleggers in the 1920s, but the illicit trade has divided the Indian community. Radical separatists are using the trade to consolidate political power and so gain complete autonomy in order to evade customs, and are using the money to stockpile weapons. Others, meanwhile, are concerned about the corrupting effect the traffic in illegal tobacco has on the community.

While few foresee that level of black market activity in the United States, some believe a $1-per-pack increase in the U.S. tobacco tax would inevitably increase smuggling along the Mexican border. "We've already noticed an increase in illegal activity in California as a result of our [state] tax increase," says Monte Williams, an administrator in the excise taxes division of the California State Board of Equalization. "We went from 10 to 35 cents a pack back in January of '89, and we've had a large increase in felony and misdemeanor convictions for smuggling since then." He says the "potential's definitely there" for an explosion of black market activity and speculates that it wouldn't be in border states only. "Once you get it across the border, if you're organized at all, to get it between the states wouldn't be anywhere near as difficult."

Williams believes that to combat increased cigarette smuggling, government authorities would need a larger presence at the borders. "I'm sure customs doesn|t check a large percentage of the total vehicles now, but they would need to start," he says. "Truck traffic is one thing, but you can smuggle a lot of cigarettes over in a car."