PROVIDENCE – A new report from the Tax Foundation found that following the increase of the cigarette excise tax in Rhode Island from $3.75 to $4.25, cigarette smuggling into the state increased significantly.
Rhode Island ranked as having the eighth highest rate of inflow of cigarettes in the nation in 2018, with 24.3% of cigarettes consumed having come from out of state. Rhode Island ranked No. 18 one year prior. Inflow of cigarettes into the state was said to have increased by 70% following the tax raise, which took effect in fiscal 2018.
The report noted that while Rhode Island smuggling had increased following its tax increase, inbound smuggling in Massachusetts declined, “suggesting that Rhode Island’s tax increase impacted interstate smuggling.”
Data for the report came from the Mackinac Center for Public Policy, the Tax Foundation said.
“The crafting of tax policy can never be divorced from an understanding of the law of unintended consequences, but it is too often disregarded or misunderstood in political debate, and sometimes policies, however well-intentioned, have unintended consequences that outweigh their benefits,” wrote Ulrik Boesen, senior policy analyst at the Tax Foundation.
New York was the highest net importer and had a rate of 52.15% of cigarettes consumed having been smuggled.
Rates of smuggled cigarettes consumed New England, accounting for imports and exports:
- Connecticut: 26%, and a 2018 excise tax of $4.25
- Massachusetts: 21.5% with a tax of $3.51
- Maine: 8.1% with a tax rate of $2
- Vermont: 3% with a tax rate of $3.08
- New Hampshire: a rate of -66.8%, indicating illegal exports, with a tax rate of $1.78
The full report may be found online.
