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Tobacco proposal raises smuggling worries

Published 2:21 pm, Friday, November 22, 2013
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The American Cancer Society on Nov. 21 marked 37 years of its "Great American Smokeout" by urging Congress to act on a cigarette tax bill aimed at decreasing public health costs by making tobacco prohibitively expensive.

The legislation, co-sponsored in April by Sen. Richard Blumenthal, D-Conn., would nearly double the current federal cigarette tax, from $1.01 to $1.95 per pack. The bill is intended to prevent children from smoking cigarettes in the first place.

"Raising the price of tobacco products is one of the most effective approaches to encourage people to quit and prevent kids from picking up the deadly habit in the first place," said American Cancer Society Cancer Action Network CEO John R. Seffrin in a statement. "Research has consistently shown that every 10 percent increase in the price of cigarettes reduces youth smoking by 6.5 percent and overall cigarette consumption by about 4 percent."

But hidden behind the mission of public health is a growing problem of tobacco contraband that snakes its way between states and international borders while federal, state and local law enforcement struggles to thwart it.

State efforts to dissuade smokers and potential smokers through high taxes have been undercut by cigarette smuggling from low-tax jurisdictions including Indian reservations and Southern states to high-tax states like New York and Connecticut.

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Michigan-based Mackinac Center for Public Policy, said the proposal is a ripe target for Congress -- especially since children's health is at risk -- but doing so might widen a Prohibition-era market for smuggled cigarettes.

"The political class is turning cigarette packs into little gold bars by hiking these taxes," LaFaive said.

The volume of tobacco smuggling has skyrocketed in recent years. Between 2003 and 2012, the average of new tobacco diversion investigations more than tripled to 135 a year, according to figures from the Bureau of Alcohol, Tobacco, Firearms and Explosives.

In Connecticut, just shy of a quarter -- 22.25 percent -- of all cigarette sales went untaxed in 2011, an increase of 10 percent from 2009.

Connecticut ranks fourth among the states with the highest cigarette taxes at $3.40 per pack, and 14th in the nation for total cigarette smuggling, according to a recent study from the Mackinac Center.

In New York, cigarette taxes are higher than any other state at $4.35 per pack -- which doesn't include the additional $1.50 tacked on in New York City -- and the state is the nation's leader in cigarette smuggling.

Blumenthal's bill, officially called the Tobacco Tax and Enforcement Reform Act, is intended to help law enforcement better identify criminals and terrorists who profit from the illegal trade of tobacco.

As a former attorney general of Connecticut, Blumenthal said he fought to prevent tobacco smuggling from causing more damage to public health and taxpayers.

"The public rarely focuses on it because it's sometimes ignored or regarded as sort of a victimless crime, but in fact, its victims are many," he said in an interview.

But ATF, chronically short of financial resources, prioritizes tobacco investigations only if they involve a nexus to organized crime, guns or funneling proceeds to terrorist groups, and casual exchanges of tobacco often go overlooked.

The letter in the middle of ATF has become "a small T," said Derek Champagne, district attorney of Franklin County, N.Y., whose jurisdiction includes the Mohawk St. Regis reservation.

Stories by the Albany Times Union and Hearst Newspapers earlier this month documented how ATF and state authorities have virtually turned a blind eye to cigarette smuggling from Mohawk and other Indian reservations throughout New York state to New York City and urban areas in Connecticut and throughout the Northeast.

"As much progress as we've made, we've hit a plateau, unfortunately and tragically," Blumenthal said. "We need to redouble our effort despite the progress that's been made."

Dan Freedman of the Hearst Washington Bureau contributed reporting. Email: Rachel.jackson@chron.com