Prohibition doesn't work — need it be said again?

Prohibition doesn't work — need it be said again?
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New York state briefly banned flavored vaping products in September, only to have that ban stayed by a court of the New York State Appellate Division days later. The state Supreme Court is expected to hear arguments on the stay on Friday. The ban, and those considered in other states, should not take effect. America has experience with prohibiting popular products — alcohol comes to mind — and making others prohibitively expensive, such as cigarettes. The results should serve as a warning signal to all policymakers.

If an explicitly illegal product such as heroin cannot be kept off the streets and out of prisons, city and state officials in New York and elsewhere will be powerless to stop a wave of vaping favorites from flowing in from jurisdictions near and far. 

Banning flavored vaping products likely will mean revisiting the Prohibition era. We already see some of those ills in response to aggressive taxation on cigarettes: tainted and unregulated supplies and suppliers, sale of “loosie” products, possible corruption of public officials, and violence toward people and police. 

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I have spent much of my working life interested in the era of alcohol Prohibition and what I call “prohibition by price.” This latter subject involves tobacco cigarettes and it occurs when a taxing jurisdiction maintains high excise taxes on a popular legal product. Both subjects have led me to take an interest in New York. 

What I have found is that bans give birth to smugglers, as do high price differentials (based on excise taxes) on popular products. New York state has one of the highest excise taxes in the country ($4.35 per pack) and New York City piles on an extra $1.50. As a result, both are a cigarette smuggler’s paradise. Banning flavored e-cigarettes will prompt more smuggling, enriching smugglers and the treasuries of bordering states. 

Each year, my colleague Todd Nesbit and I estimate the degree to which cigarettes are smuggled because of tax evasion and avoidance. Through 2017, we estimate, 55 percent of New York’s cigarette consumption resulted from smuggling. That’s the highest rate in the country. Most of that may be because New York City, with its high tax rate on cigarettes, is densely populated and relatively close to lower-tax jurisdictions such as Virginia.

A 2013 report by eight scholars examined discarded cigarette packs in New York City for evidence of their origin and found that only 40 percent had the correct local tax stamp. Another study, in 2015, attempted to quantify how many illicit smokes are sold from the city’s retail stores. Researchers bought 830 packs of cigarettes across 92 city neighborhoods. Of those packs, more than 15 percent had a different state’s tax stamp or a counterfeit one. More than 29 percent of those bore a Virginia tax stamp and more than 70 percent carried a counterfeit New York stamp. 

In other words, smuggling is rampant in New York City — and that’s for a product that remains perfectly legal. An outright ban on flavored vaping products likewise will not work. It will only raise the cost of a product people want and the price that smugglers will charge. 

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It is hard not to wonder if New York’s criminal gangs are salivating at the opportunity to distribute banned vaping products. Organized crime has distribution networks in place and has been smuggling smokes in the city since at least the 1950s. 

This should not be lost on policymakers. In fact, just last week a hearing was held in criminal court in Queens, New York, for one defendant of a larger crime cell busted for trafficking untaxed cigarettes. The estimated loss of tax dollars to New York state alone was nearly $1 million. The defendant was arrested while removing state tax stamps and affixing counterfeit ones, and “her hands were covered in adhesive at the time of the arrest,” according to court documents

Do New York officials believe if they ban flavored (or other) products smugglers will do anything other than raise their game? Officials elsewhere, such as Michigan’s Gov. Gretchen Whitmer, have announced temporary bans on flavored vaping products. Those efforts likewise will not succeed.

None of this is to suggest that I support smoking or vaping — I do not. But any government that attempts a ban on flavored cigarettes or vaping products is playing with fire. Such bans only enrich existing and future smugglers and inconvenience those consumers who wish to live within the bounds of the law.

Michael LaFaive is senior director of fiscal policy for the Mackinac Center for Public Policy in Midland, Mich., and author of “Prohibition by Price,” a chapter in the 2018 book, “For Your Own Good,” and the co-author of numerous cigarette tax and smuggling studies. Follow him on Twitter @lafaive.