- Historic Sites
February/march 1993 | Volume 44, Issue 1
The history of cigarette taxation serves to illustrate this principle. In 1960 state taxes on cigarettes were low, between zero and eight cents per pack, but after 1965 a growing number of states sharply increased cigarette taxes in response to health concerns and as a politically painless way of increasing revenue. Some states, mainly in the Northeast, were considerably more aggressive than others in raising taxes. By 1975 North Carolina purchasers were paying thirty-six cents per pack while New Yorkers paid fifty-four cents. The price was higher still in New York City because of a local levy that reached eight cents per pack (as much as the entire federal tax) at the beginning of 1976.
Thus was born an opportunity to buy cheap and sell dear. Those who bought in volume at North Carolina prices and sold at New York (or Connecticut, or Massachusetts) prices realized a substantial profit, and by the mid-1970s net revenue losses stood at well over three hundred million dollars a year. Much of this went to organized crime, which at one point was bootlegging 25 percent of the cigarettes sold in New York State and half of those sold in New York City. The pioneer of the illegal traffic, Anthony Granata, established a trucking company with thirty employees operating vehicles on a six-days-a-week basis. Granata’s methods—concealed cargoes, dummy corporations, forged documents, fortress-like warehouses, bribery, hijacking, assault, and homicide—were strikingly similar to those used by illicit drug traffickers and Prohibition bootleggers.
Although high-tax states like Florida or Illinois still lose millions annually to cigarette bootleggers, the 1978 federal Contraband Cigarette Act and stricter law enforcement and accounting procedures have had some success in reducing over-the-road smuggling. But it is relatively easy to detect illegal shipments of cigarettes, which must be smuggled by the truckload to make a substantial amount of money. Cocaine and heroin are more compact, more profitable, and very easy to conceal. Smuggling these drugs to take advantage of state tax differentials would consequently be much more difficult to detect and deter. If, for example, taxed cocaine retailed in Vermont for ten dollars a gram and in New York for twelve dollars a gram, anyone who bought just five kilograms at Vermont prices, transported them, and sold them at New York prices would realize a profit of ten thousand dollars. Five kilograms of cocaine can be concealed in an attaché case.
Of course, if all states legalized drugs and taxed them at the same rate, this sort of illegal activity would not exist, but it is constitutionally and politically unfeasible to ensure uniform rates of state taxation. And federalism poses other challenges. Laws against drug use and trafficking have been enacted at the local, state, and federal levels. It is probable that if Congress repeals or modifies the national drug laws, some states will go along with controlled legalization while others will not. Nevada, long in the legalizing habit, might jettison its drug laws, but conservative Mormon-populated Utah might not. Alternately, governments could experiment with varying degrees of legalization. Congress might decide that anything was better than the current mayhem in the capital and legislate a broad legalization program for the District of Columbia. At the same time, Virginia and Maryland might experiment with the decriminalization of marijuana, the least risky legalization option, but retain prohibition of the nonmedical use of other drugs. The result would again be smuggling, whether from Nevada to Utah or, save for marijuana, from the District of Columbia to the surrounding states. It is hard to see how any state that chose to retain laws against drugs could possibly stanch the influx of prohibited drugs from adjacent states that did not. New York City’s futile attempts to enforce its strict gun-control laws show how difficult it is to restrict locally that which is elsewhere freely available.
I referred earlier to the legalization debate as an argument about a colossal gamble, whether society should risk an unknown increase in drug abuse and addiction to eliminate the harms of drug prohibition, most of which stem from illicit trafficking. “Take the crime out of it” is the rallying cry of the legalization advocates. After reviewing the larger history of narcotic, alcohol, and tobacco use and regulation, it appears that this debate should be recast. It would be more accurate to ask whether society should risk an unknown but possibly substantial increase in drug abuse and addiction in order to bring about an unknown reduction in illicit trafficking and other costs of drug prohibition. Controlled legalization would take some, but by no means all, of the crime out of it. Just how much and what sort of crime would be eliminated would depend upon which groups were to be denied which drugs, the overall level of taxation, and differences in state tax and legalization policies. If the excluded groups were few and all states legalized all drugs and all governments taxed at uniformly low levels, then the black market would be largely eliminated. But these are precisely the conditions that would be most likely to bring about an unacceptably high level of drug abuse. The same variables that would determine how successful the controlled-legalization policy would be in eliminating the black market would also largely determine how unsuccessful it was in containing drug addiction.