Provocative: Can Black Market Reduce Cigarette Deaths?

By ACSH Staff — Feb 01, 2016
In an effort to stop tax evaders, the federal government is cracking down on sales of illegal cigarettes. Yet contrary to popular opinion, the cigarette black market may actually benefit public health, especially in impoverished communities. That's hard to believe, you say? Here's how it could.


In New York City, the average cost for a pack of cigarettes is $13, far higher than states like Colorado, California and Oregon, where the cost is just over $5. That is due to a special tax in New York City that is itself approaching $5 per pack.

As neutral economists predicted, it probably helped reduce smoking, but it also led to a huge increase in black market cigarettes. And as strange as it sounds, that black market may be improving the health of smokers.

What is the cigarette tax version of the Laffer Curve? We have some idea by now. Cigarette tax revenues were over $16 billion in 2010, but in 2015 cigarette tax revenues had dropped to about $14 billion and the CBO projects revenues will fall below $12 billion by 2025. Some of it is due to the decline in smoking, and we at the American Council on Science and Health are proud to take some credit for that, but high taxes have also led to a black market which generates no taxes.

Due to high taxes, New York has a nation-high smuggled inbound cigarette rate of 56.9 percent. To avoid the taxes, studies show that more impoverished New Yorkers have turned to "bodegas" and individuals that sell untaxed cigarettes, often one at a time, colloquially called "loosies." As expected, once government was reliant on tax revenue from smokers and that revenue declined, officials began cracking down on loose cigarettes, which are usually bought one or two at a time. But the black market may actually be assisting in improving public health, especially in poor communities.

How so? Sales of loosies may mean that smokers are still smoking, but a lot less. In New York, black males between 18 and 24 years old, and those without a high school degree, are the largest demographic that still smoke. Smoking may decline if it is more convenient to buy just a few -- if you have a pack, you will smoke a whole pack, but if you have two, you will smoke two. Then there is the societal issue. Smoking is an addiction, so if legal taxes are high for a whole pack, and a whole pack is the only choice, poor people are going to sacrifice other things to satisfy their addiction.

Solange Uwimana at Vice spent a day with a loosie seller and reported:

"Low-income smokers now spend nearly a quarter of their income on cigarettes because of high taxes, according to one 2012 study. The study concluded that these taxes had no significant effect on their smoking habit and that, in fact, smokers with annual incomes less than $30,000 doubled their spending on cigarettes between 2003 and 2011."

That money was mostly going to the government. Uwimana interviewed Kelly Cooke, a smoker since she was a teen, who now buys loosies and is down to a pack and a half of cigarettes from four. That's still too many cigarettes, but a lot less harmful than four packs a day. Even wealthy people may be smoking less.

"More affluent smokers, on the other hand, have found that buying cigarettes on the street is a way to keep smoking without, well, really smoking. A friend refers to her habit as the 'loosie-a-day smoking plan.' She no longer smokes a pack a day, but still buys one to two cigarettes per day for high-stress situations."

The New York State Health Department found that in the five years between 2006 and 2010, smoking-related cancer deaths averaged 16,462 people, a terrific health burden on a health care system that is now financed by the public.

It is very difficult to quit smoking all at once, some people combine harm reduction -- smoking less -- with smoking cessation like nicotine patches, gums or vapors. If someone has two cigarettes instead of 20, that is substantial harm reduction. While government claims that loose cigarettes sold individually without a tax stamp are detrimental to their short-term revenue, the longer-term benefit could be greater, in the form of fewer smoking-related deaths, since someone who smokes a few cigarettes per day has an easier time eventually quitting than someone who smokes a few packs.

We'll wait for future studies to determine whether the cigarette black market actually helps smokers quit more easily. In the meantime, if the government truly cares about public health, they might focus less on the loosie crackdown.

The American Council on Science and Health wants no one to smoke, but getting there means different techniques for different people and so we like to discuss all options.

What do you think? Let us know in the comments.

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