New Study Shows Smuggling Rate Will Double With $2 a Pack Tax Increase

​(October 1, 2013) A new study released by the California Foundation for Commerce and Education (CFCE) concludes that the tobacco smuggling and black market crime rate will double and the state will lose as many as 11,000 retail jobs if the current tax on tobacco is increased by $2 a pack as proposed in pending legislation. The report also finds that the state will lose revenue from legitimate cigarette sales as the penetration of smuggled cigarettes increases.

“Increasing the tobacco tax hurts local, family-owned small businesses, as they lose business to illegal sales activity. California will lose 11,000 retail jobs as the rate of tobacco smuggling and black market sales doubles,” said CFCE President Loren Kaye.

The tax increase is among changes proposed by SB 768 (de León; D-Los Angeles), which was placed on hold in the Senate Appropriations Committee earlier this year pending a review of the bill’s fiscal impacts. 

One in five cigarettes in California already is smuggled into the state, based on data from the Centers for Disease Control and Prevention and Board of Equalization.

If the tobacco tax is increased by $2, smuggling will become more attractive and more lucrative to criminals and hundreds of millions more cigarette packs will be smuggled into the state and sold on the black market, according to the study, “The State and Local Impact of Tobacco Prices on Smuggling and Black Market Tobacco Sales.” This increase in black market sales will cost the state as many as 11,000 legitimate retail jobs and disproportionately affect poor and minority communities.

“Job growth is critical for our state’s economic recovery, and the loss of 11,000 jobs will be a significant step backwards. Many of the counties struggling most with job growth are those located on the California/Nevada or California/Arizona border. Those regions, where every job counts, will suffer the most when smuggling increases under a tobacco tax increase,” Kaye concluded.

A copy of the study can viewed here.

The study was prepared for CFCE by Andrew Chang & Company, a Sacramento-based economic and public policy consulting firm.

The CFCE is a nonprofit, nonpartisan think tank affiliated with the California Chamber of Commerce, dedicated to preserving and strengthening the California business climate and private enterprise through education and research.

Staff Contact: Loren Kaye