Number One Yet Again

(Photo by Tama/Getty/WSJ)

California is first in the nation in categories good and bad (e.g., wealth, business startups, agriculture, homelessness, technology, air pollution), but few people are probably aware that it is the leader in cigarette smuggling:

More than half of cigarettes smoked in California—53%, to be exact—evaded or avoided the state’s cigarette mandates and levies. That’s a stunning rise from a decade ago, when 28% of cigarettes were smuggled into the Golden State. It also takes California past New York, where we estimate that 52% of cigarettes are smuggled.

What changed? A 2017 California law raised the cigarette tax from 87 cents to $2.87, which gave smokers an incentive to find cheaper options—which out-of-state and transnational smugglers were more than happy to provide. California then banned menthol cigarettes, which make up roughly a third of the nation’s cigarette sales, along with other flavored tobacco products, in late 2022.

...The Golden State’s policies also encourage public corruption. Last year a former prison guard was indicted for his role smuggling tobacco into Solano State Prison, near Sacramento. The state struggles to keep tobacco, narcotics and cellphones out of prisons. What makes its leaders think they can keep a tidal wave of illicit cigarettes and other nicotine products out of the hands of nonincarcerated Californians? California has many major ports, bonded warehouses, the Mexican border, and nearby states with lower tax rates, all of which can be exploited by smugglers to save or make a buck at California’s expense.

Lower-taxed states are a major source of cigarettes to high-taxed ones. Wyoming’s smuggling export rate is 55%. Idaho’s is 28%. In other words, for every 100 cigarettes consumed in those states, an additional 55 and 28, respectively, are bought there and smuggled into other states. It doesn’t strain credulity to suggest that many of these lower-taxed smokes end up in California.

California politicians and their staff don't seem to have much knowledge about how incentives influence behavior. Until we elect more people who have spent time earning a living in the real world--and I don't mean lawyers and educators--our state and local governments will keep passing well-intentioned laws that have no chance of success.