Maryland’s recently enacted $1-per-pack cigarette tax increase has been a budgetary and public health success for which Gov. Martin O’Malley and the General Assembly should be proud. In the year after it took effect on Jan. 1, 2008, the cigarette tax increase brought $144 million in additional funds into the state coffers, which have helped to fund Maryland’s recent health care expansion. This expansion brought health care coverage to more than 52,000 Marylanders and brought Maryland from 44th to 16th in the nation in health care coverage for adults.
In addition, during the year after the cigarette tax took effect, there were 74 million fewer packs of cigarettes sold in Maryland, and partly as a result, Maryland now has the fourth-lowest smoking rate in the nation. Some have argued that more people just bought their cigarettes in neighboring states with lower cigarette taxes. Not so.
During 2008, total cigarette sales dropped by 103 million in Maryland, Delaware and the District of Columbia, all of which raised their cigarette taxes that year. At the same time, in the three neighboring states that did not raise their cigarette taxes, Virginia, Pennsylvania and West Virginia, cigarette sales went up by 37 million packs. Therefore, the vast majority of the net drop in cigarette sales in Maryland, Delaware and D.C. was from people smoking less, which saved thousands of lives and hundreds of millions of dollars from tobacco-caused illness and death.
Of course, there is some tobacco smuggling in Maryland, although we have no idea how much. What we do know is how much additional money the state has raised and how much the tax increase has reduced smoking. We are pleased that Comptroller Peter Franchot is doing all he can to stop this illegal activity. He could use more effective tools to reduce cigarette smuggling.
Fortunately, there are relatively simple, cost-effective measures Maryland could implement to prevent and reduce cigarette smuggling and other tobacco tax evasion. California, for example, instituted a new high-tech tax stamp for cigarettes and enjoyed a $100 million increase in its cigarette tax revenues (without any tax increase). But Maryland is still using hard-to-see and easy-to-counterfeit tax stamps based on technology from the 1950s. A high-tech tax stamp would shut the door on the tax-free sale of contraband cigarettes by Baltimore retailers by enabling enforcement officials and others to quickly and definitively identify any contraband cigarettes that are in transit or on retailer shelves.
Maryland could also increase statutory penalties for trafficking in contraband tobacco products; require better record keeping by wholesalers and retailers; set up hot lines for consumers, retailers and others to report illegal cigarette sales; better protect whistle-blowers from retaliation; and allow enforcement agencies to keep some of the penalties and fines they collect from contraband traffickers to support expanded enforcement efforts.
With a high-tech tax stamp and enhanced enforcement, Maryland would become a state that criminal smuggling organizations would avoid entirely. It would simply be easier and more lucrative for smuggling syndicates to sell their contraband cigarettes in states like New Jersey or New York that have even higher tax rates than Maryland and still use old-fashioned tax stamps that are easy to copy.
Plainly, Maryland’s past tobacco tax increases have worked well to save lives and raise money to expand health care. It would be a shame if exaggerated fears about smuggling, such as those raised in a recent column by The Sun’s Jay Hancock, stopped the state from again raising its cigarette tax. Such an increase would bring in desperately needed new revenue that could further expand health care coverage. It would also improve worker health and productivity, save lives, reduce government and business costs, and protect more of our kids from a lifetime of tobacco addiction.
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