Smuggled cigarettes accounted for 17% of all cigarettes consumed in Michigan during 2024, ranking the state 17th among the 48 contiguous states for cigarette smuggling, according to a new analysis from the Mackinac Center for Public Policy. The report argues that high excise taxes on cigarettes have fueled smuggling operations, theft, counterfeit products, and violence, with consumers changing their behavior in ways that undermine the goals tax advocates hope to achieve. The center has tracked cigarette smuggling since 2008, using a statistical model that compares legal cigarette sales with smoking rates reported in federal survey data.
New York led the nation with 61% of cigarettes consumed in the state resulting from tax evasion and avoidance in 2024, followed by California at 54%, Massachusetts at 38%, New Mexico at 38%, and Washington at 37%. New York raised its cigarette excise tax by $1 per pack to $5.35 in January 2024, causing it to surpass California and reclaim the top spot for inbound cigarette smuggling. The report identifies Wyoming as the leading outbound smuggling state at 59%, meaning that for every 100 cigarettes consumed in Virginia, an additional 59 are smuggled out. Other major source states included Virginia at 54%, New Hampshire at 36%, Delaware at 36%, and Idaho at 28%. Geography plays a significant role, with New York's smuggling driven partly by New York City's additional tax of $1.50 per pack and proximity to lower-tax neighbors like New Jersey ($2.70 per pack), Pennsylvania ($2.60 per pack), and Virginia (60 cents per pack).
The authors write that cigarette tax rates are a major driver of smuggling, with high-tax states attracting both consumers and organized traffickers seeking lower-priced cigarettes from neighboring jurisdictions. The report notes that Native American reservations and international shipments also serve as sources of untaxed or lower-taxed cigarettes. The authors emphasize that none of their smuggling estimates should be interpreted as support for smoking, stating that neither has ever smoked cigarettes and that readers who smoke should consider quitting. They qualify their international smuggling estimates from Mexico, noting they believe their model attributes some activity to Southwest states that should instead be assigned to bonded warehouses and duty-free shops, though they haven't been able to obtain necessary data to estimate the extent of this issue.
The illicit cigarette trade has become highly profitable, encouraging theft, counterfeiting, and other criminal activity beyond simple smuggling. Last month, authorities charged two Massachusetts men who allegedly held people at gunpoint to steal boxes of cigarettes from a New Hampshire store before fleeing in a burning U-Haul. In May, U.S. Customs and Border Protection officers at the Port of Oakland seized nearly 53,000 cartons of counterfeit cigarettes with an estimated street value of $6.8 million. The report notes that counterfeit cigarettes often contain higher levels of toxins than legally manufactured products are allowed, with some containing fillers such as sawdust. Since the Mackinac Center published its first cigarette-smuggling study in 2008, it has documented numerous crimes connected to illicit tobacco trafficking, including murder-for-hire schemes, police corruption, and acts of violence against both officers and civilians.
The report concludes that policymakers should more carefully weigh the consequences of their tax policies, warning that in some cases, the unintended costs may exceed the benefits policymakers hope to achieve. The authors argue that consumers do not eagerly await paying more in ever-higher taxes and will change their behavior in ways that undermine policy goals. Given cigarettes' street value, they function much like small gold bars, creating a currency in high demand that attracts organized crime. The bottom line: high cigarette taxes have created a black market that brings violence and counterfeits alongside any public health benefits.