I think we can all agree on the fact that prohibition of alcohol was a huge help to organized crime (and the Kennedys) in the 1920s. So why is it so hard for people to understand how much the drug war helps drug cartels and other crime syndicates? Essentially the government says no one is allowed to sell these things, unless you care so little about laws that you will do it anyway. And voila, we have a robust organized crime network ready to step in with a supply where the market demands a product. What exactly do people think would be different if guns were outlawed?
But not only does making something completely illegal help organized crime, over-regulating or over-taxing something can equally assist an underground economy.
The political addiction to higher cigarette taxes is creating a boon for organized crime. Last month, the Tax Foundation, in testimony before the US Senate, noted that over 56% of the cigarettes sold in New York State were smuggled in from other states. New York has the highest tax on cigarettes in the country.
Many smokers are avoiding these higher taxes, though. They are simply buying their smokes, usually unwittingly, from criminal syndicates.
As documented back in 2009, New Jersey has had the unfortunate experience of seeing total revenue from cigarette taxes drop after pushing through a cigarette tax increase.
I never thought government should be in the business of trying to shape behavior, when it does not encroach on others rights and well being. Add to that the situation where they make behavior worse with unforeseen consequences. They want fewer people to smoke fewer cigarettes, so they make them more expensive, and this creates an underground demand for the cigarettes, which leads to underground jobs where no taxes will be paid in addition to the loss in tax revenue from the cigarette sales. I’m not too concerned about falling tax revenue, the less money the less power. But there are lessons from this.
Higher taxes do not always mean higher tax revenues. Sometimes (maybe always), trying to solve one problem with force, gets you a bigger problem (i.e. mafia). The answer is for the government to stop robbing us and allow prices for everything be decided by market demand, and market supply.