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Despite $8 Billion Surplus, Texas Legislature Relies On Source Of Revenue That Could Increase Illegal Activity
RICHMOND, VA (May 1, 2006) - The $1.00 per pack state cigarette excise tax increase currently being considered by the Texas Senate could increase unlawful cigarette sales and create opportunities for individuals and organized crime to profit from running cigarettes from low-tax tax states to Texas.
"Texas can create the revenue it needs without also creating a host of unintended consequences," said Bill Phelps, Philip Morris USA spokesman. "Other states that have raised their cigarette taxes excessively have seen increases in people turning to other venues to purchase their cigarettes and avoid or evade paying taxes. This can create new problems for the state including increased illegal activity."
New York experienced this trend after it raised its excise tax to $1.50 in 2002. The state health department conducted a survey which found about 30 percent of adult smokers in New York regularly purchased their cigarettes from Native American sources, the Internet or other sources enabling them to avoid paying the state excise tax. About 70 percent of smokers said they bought cigarettes from low-tax or no-tax sellers at least once in 2004.
Texas smokers faced with large cigarette excise taxes may travel to nearby states where the tax rates are lower. Additionally, as other states have learned, Texas smokers could turn to other venues such as Native American sources or the Internet where state excise taxes may be avoided or evaded illegally.
In 2004, Michael Garcia, assistant secretary of Immigration and Customs Enforcement described the scope of this problem in an interview with the Washington Times: "cigarette smuggling costs the United States more than $1 billion in lost revenue every year, while pumping incredible profits into criminal organizations."
"This type of activity can be avoided. A better approach is a moderate cigarette tax increase phased in over several years that could help avoid the unintended consequences that could result from an immediate $1.00 increase," Phelps said, citing Virginia and North Carolina as states that recently addressed fiscal issues through a broad tax reform package that included a phased-in cigarette tax increase.
The $1.00 tax increase will raise the Texas cigarette excise tax to $1.41, the highest of any neighboring state. A carton of cigarettes will be $6.00-$13.00 more expensive in Texas than in neighboring states such as Oklahoma and Louisiana.
