Right-wing think tanks say Minnesota's addicted to smuggling cigarettes

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According to the report, the huge gap between Minnesota adult smokers and state tax revenues is from "[them] just acquiring their tobacco elsewhere."

At just a few minutes past 6:00 a.m., Shalanda Lewis has a line of customers three deep.

They want coffee, energy drinks, breakfast foods, and quite often, tobacco products. Lewis has been with the Super America store on Lake St. in Minneapolis since fall 2016. 

"I'd say every other customer is buying cigarettes," Lewis says.

That's good business for SA.

It's also good business for criminals, according to Tom Steward of the Center of the American Experiment, the right-wing think tank based in Golden Valley. A recent report titled "Minnesota's leading public policy organization" blames the state's high tobacco taxes for what's described as a booming illegal cigarette trade. 

Steward stakes the claim on new research from the nonprofit Tax Foundation and Mackinac Center for Public Policy, a free-market-oriented research organization with financial ties to the Koch Brothers. That organization looked at the number of adult smokers in Minnesota, and compared the figure with total annual cigarette collections between 2013 and 2015 -- $369, $575, and $567 million, respectively -- versus what state Department of Revenue figures should have been based on estimated consumption.  

What it found was a huge gap between smokers, about 15 percent of the adult population, and tax receipts. The shortfalls weren't from people quitting, smoking less, or using other products like e-cigarettes or vaping, the report concluded. Smugglers were moving in.

"Most people aren't quitting," Michael LaFaive, a policy staffer at Mackniac, told the American Experiment, "they just acquiring their tobacco elsewhere." 

According to his estimates, nearly four in 10 cigarette packs smoked in Minnesota are contraband, which means smuggling robs the government of more than $300 million annually.

He estimates smuggling accounted for 20 percent of purchases back when the tax was $1.60 a pack. After a tax hike in 2013, Minnesota's combined excise ($3.00) and sales tax ($0.60) per pack is $3.60, significantly higher than surrounding states. (North Dakota's excise tax is just 44 cents a pack.)

LaFaive, Mackinac, and the Center for the American Experiment have the same solution they offer on just about every issue: Cut the taxes. "As tax differentials increase between states," LaFaive claims, "so too does the opportunity [to] make or save a buck."

Or quit: The Minnesota Adult Tobacco Survey found about 100,000 Minnesotans successfully kick the habit every year. Others curtailed their use by various means, including smoking less and using nicotine replacements like gum or patches. E-cigarettes and vaping were other alternatives employed. 

And a recent Minnesota Department of Health study showed steeper taxation often factored heavily into decisions of quitting and smoking less.   

Minnesota officials acknowlegde the state's got a smoke smuggling problem: In 2015, the Department of Revenue asked for a $1 million budget increase to help police with illicit tobacco products. During one period, the department's own inspections found "untaxed" tobacco for sale in 40 percent of retail locations. 

But Revenue's estimate of the losses is a lot smaller than the $300 million LaFaive claims we're giving up by over-taxing tobacco. The number's more like $2.6 million, they said, and that's over a two-year period.


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