As details of President Clinton’s plan for a balanced budget in fiscal 1999 unravel, an expected tax on cigarettes of $1.50 per pack marks the single largest source of new revenue. This tax increase, which is expected to reduce underaged smoking and bring in over $10 billion annually, is politically popular, yet experience shows that the proposal will most likely fail on both accounts. Instead, revenues may actually drop while smoking, particularly among the young, continues to increase.

No where is this lesson clearer than in Canada. Between 1984 and 1993, Canada doubled its tax on cigarettes in an attempt to achieve similar goals to those now proposed by the White House. On Dec. 9, 1997, however, Sgt. Alain Giroux spoke on behalf of the Royal Canadian Mounted Police (RCMP) before the U.S. Senate Subcommittee on Health and the Environment to warn against the dangers of the tax increase. Not only has underaged smoking failed to decrease, but an estimated 40 percent of Canada’s cigarettes are now sold on the black market, most of which are smuggled over the U.S.-Canadian border.

In addition to an increase in organized crime and violence associated with any high quantity black market good, a shift to the illegal purchase of cigarettes undermines the goal of raising revenue through a tax on that good. Canadian law officials attribute the growth in the black market almost exclusively to the tax increase. The Canadian federal government recently reduced the cigarette tax not only because of the decline in taxable cigarette sales, but because youth smoking did not decrease and many officials ironically argued that high taxes made it more difficult to control youth smoking. Canadian Health Minister Diane Marleau reasoned that the recent tax cut will “end the smuggling trade and enforce children to rely on regular stores for their cigarettes, where they will be forbidden from buying them until they are nineteen.”

A recent study by economist Dwight Lee of the Center for the Study of American Business at Washington University in St. Louis, Missouri draws similar conclusions regarding increased state cigarette taxes. New York, California, and Michigan have each increased cigarette taxes since 1988, and each has reported a substantial reduction in cigarette sales: 31 percent in New York, 28 percent in California, and 30 percent in Michigan. A more detailed look, however, reveals that smoking is not decreasing. In Michigan, the Centers for Disease Control reported that smoking actually increased slightly since the tax increase from $0.25 to $0.75 per pack. An article entitled “Smugglers Win” in the Detroit Free Press stated, “Michigan’s higher tobacco tax has spawned rampant cigarette smuggling that’s siphoned millions of tax dollars from the state treasury, while lighting up huge profits for traffickers.” In 1995, one year after Michigan raised the cigarette tax, low tax states within a one-day drive saw an increase in their cigarette sales: a 12 percent increase in North Carolina, an 8.5 percent increase in Indiana, a 7.5 percent increase in Tennessee, a 6 percent increase in Kentucky and Missouri, and a 4.5 percent increase in Ohio and Virginia.

In California, the situation is similar. Since the state raised the cigarette tax from $0.18 to $0.35 per pack in 1988, the black market now accounts for an estimated 17.2 to 23 percent of cigarettes sold, most of them coming out of Mexico, according to the accounting firm Lindquist, Avey, and MacDonald. If legal cigarette sales have decreased 28 percent, the black marketwould only need supply 13 to 14 percent of the state’s cigarettes to ensure that smoking had not decreased.

Such statistics cast doubt on the effectiveness of an increased cigarette tax to either reduce smoking or raise revenue. While on the surface the proposal seems to kill two birds with one stone, the details reveal that if implemented, the plan may intensify the very problems it seeks to resolve, leaving U.S. citizens neither healthier, wealthier, nor wiser.

Erin Schiller is a Public Policy Fellow at the California-based Pacific Research Institute.