06/04/2012 08:07 pm ET Updated Jun 04, 2012

Prop 29: Willie Brown Says Cigarette Tax Will Be A Boon To Smugglers

Willie Brown isn't one to keep his opinions to himself.

In his most recent Willie's World column for the San Francisco Chronicle, the former San Francisco mayor predicted the passage of Prop 29, a bill that would add a $1 tax to each pack of cigarettes sold in California.

Then he lamented that one of the ballot initiative's unfortunate side effects will be an increase in cigarette smuggling.

"No sooner does the new tax go into effect, my street contacts tell me, than Indian tribes will open tobacco shops at their casinos, where buyers can escape state taxes and buy cigarettes on the cheap," wrote Da Mayor. "Just as quickly, smugglers will start rolling in truckloads of smokes from Nevada, Arizona and Oregon, as street dealers realize there is more money to be made selling hot cigarettes than there is selling dope."


There are two ways to smuggle cigarettes. First, there's "casual smuggling," where individuals travel to comparatively low-tax areas (think Native American reservations or Nevada) to purchase smokes. The second form of smuggling, the "commercial smuggling" worrying Brown, is when larger entities travel to said low-tax areas, load up on cigarettes and then illegally sell them back in the more expensive zones without paying taxes.

The smuggling argument has been a common refrain from Prop 29's opponents. According to a 2003 study conducted by UC San Francisco's Center For Tobacco Control Research and Education, however, between the years of 1995 and 2003 the rate of cigarette smuggling nationally has remained essentially constant (between two and six percent) despite widespread increases in cigarette taxes.

If there's anyone likely to engage in shady dealings after the passage of Prop 29, explains the study's authors, it's the tobacco companies themselves. "Once tax increases are implemented, the tobacco industry, contrary to its rhetoric, uses the tax increase to mask wholesale price increases," it reads. "On average, the tobacco industry increases wholesale prices by 150% of any tax increase."

The California State Board of Equalization estimates that nearly a quarter of cigarettes smoked in California are smuggled in.

While the vast majority of the up to $735 million generated by the proposition annually will go toward cancer research, Prop 29 does set aside a pool of money to combat cigarette smuggling.

Even so, at least a small increase in cigarette smuggling may occur, and it could likely have real consequences. A 2008 study by the Mackinac Center for Public Policy explains:

The authors' review of Michigan's, New Jersey's and California's cigarette smuggling experiences suggest that cigarette smugglers can realize large profits: tens of thousands of dollars for a single vanload of cigarettes, and hundreds of thousands of dollars for a single truckload. These sums represent a loss in estimated tax revenues to a state's treasury, but they have produced other unintended consequences, including a variety of crimes: financing a terrorist organization; thefts of untaxed cigarettes, including truck hijackings; thefts of state tax stamps; counterfeiting of tax stamps; property damage; counterfeiting of name-brand cigarettes, which are replaced with adulterated products, including counterfeit cigarettes from China; and violence against residents and police officers.

The terrorism claim comes from a 2008 incident in which two brothers were convicted of a running a massive cigarette smuggling operation. They bought cigarettes in North Carolina, sold them in Michigan and then funneled the portion of the money to Hezbollah.

A recent Field Poll lent credence to Brown's intuition on Prop 29's probability of success, with 50 percent of voters supporting, 42 percent opposed and eight percent still undecided. Prop 29's lead comes despite being vastly outspent, $12 million to $47 million, by the measure's opponents.

Even though California municipalities have some of the most restrictive anti-smoking laws in the nation, the state is one of the few to have not hiked its tax on cigarettes over the past decade. In 2006, the tobacco lobby deluged California with an ultimately successful $67 million ad campaign against a proposed $2.60 tax per pack increase.

As for the other proposition on Tuesday's ballot, a reformation of the state legislature's term limits system, Brown's feelings were a decidedly less mixed. "I am adamantly opposed to Proposition 28 to modify term limits for California state legislators," he wrote. "As the No. 1 victim of term limits, I consider them an abomination and cannot support anything to make them more palatable. The only move I support is their total repeal."

Before becoming mayor, Brown served in the California Assembly for 30 years, the latter half of which he was Speaker. The 1990 campaign to pass term limits in the state was largely targeted directly at him.

We can see why he takes it personally.

Check out these ads both for and against Prop 29:



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