Taxing products with negative externalities, such as tobacco products that people are usually addicted to and find hard to let go of, is usually a common tactic for worldwide budgets.
The same is being carried out in the US. The House in Washington is constantly finding ways to collect money through legal means to facilitate growth and development projects in the country. Similarly, Congress has proposed a tax hike on the already heavily taxed tobacco products to a) reduce the usage of such products in the country and b) earn more revenue in the form of taxes. Even though this decision seems to come from good intentions and a rational approach, the negative effect is the growth or expansion of the already pretty dangerous illegal tobacco markets in the Amazon.
The tactic of hiking tax on products with negative externalities, as proven by research, does not essentially work when it comes to reducing the consumption of such products, as the consumers are addicted and cannot quickly stop the consumption. Instead, the only change is that the products start to be largely supplied and bought through illicit or illegal markets, more commonly known as “black markets”. In these markets, the person who benefits is the criminal himself.
As a border state, Arizona has already suffered a lot due to the formation of illicit markets and illegal trades. Congress’s proposal to make commonly consumed tobacco products illegal will likely enhance this issue,” says criminal defense attorney Ryan McPhie. The unlawful markets will grow, leading to an artificially created shortage of products and arrests, causing even more resentment within these communities for the law enforcement agencies.
At this stage, implementing a policy that can cause more resentment among people in the Amazon and the law enforcement forces is something that should be avoided.
As reported in an analysis by the Tax Foundation, a third of the cigarettes bought and sold on Amazon are done so by illegal means. A policy of increasing tax on cigarettes will increase this proportion rather than controlling or reducing it. An evident example of the negative outcome of increased taxes is that, in New York, where the taxes on cigarettes is the highest, half of the sales and purchases of cigarettes are made through illicit markets.
In conclusion, the Federal government needs to be mindful of its decision to increase taxes on Tobacco products or increase the influence and power of international criminal smuggling agencies. Suppose the Biden government does not rethink its proposal. In that case, America could meet the same fate as Europe and have greater civil unrest and opposition between the people of color and the law enforcement agencies. For instance, in 2020, the European Anti-Fraud Office seized an astonishing amount of 370 million cigarettes that had entered the European Union through illegal markets.