News Story

Cigarette Smuggling Still Rampant, Problematic

The Mackinac Center for Public Policy has since 2008 published estimates of cigarette-smuggling rates by state. Our latest study update — published with the Tax Foundation of Washington, D.C. — details such numbers through 2013 and indicates that Michigan is still ranked 10th in the nation for smuggling. Nearly 25 percent of all the cigarettes consumed in the Great Lakes State were smuggled in during 2013.

Our estimates again show that New York is the No. 1 state for tax evasion and avoidance, at 58 percent. This is not a surprise to us, as New York has the highest state excise tax in the nation and the second-highest state-local combined rate. New York City maintains a municipal cigarette excise tax of $1.50 per pack. Exacerbating New York’s problems is its geographic proximity to low-tax states like Virginia.

The top five smuggling states in this year’s study are New York, Arizona, Washington, New Mexico and Rhode Island. The state of Washington is currently toying with the idea of another 50-cent excise tax hike. Our model estimates that, if the increase were adopted, Washington’s smuggling rate would leap from 46.4 percent to 52.5 percent, displacing Arizona from its perch at No. 2 in our annual rankings.

It is worth noting here that the Mackinac Center uses the word “smuggling” to describe all the cross-border cigarette trafficking reported by its model. One small caveat is that not all tax avoidance is tax evasion. That is, some states, like Minnesota, permit their citizens to bring small amounts — such as a carton per month — into the state. Those transfers may not be illegal, but they are nonetheless picked up in our statistical model and described as a smuggled good.

At the opposite end of the smuggling spectrum is New Hampshire, a perennial smuggling “export” state. By our estimate, for every 100 cigarettes consumed in the state, an additional 28.7 are smuggled to other states.

The Mackinac Center for Public Policy is not the only institution to publish cigarette-smuggling rates by state in 2015. The National Academy of Sciences and the Institute of Medicine jointly published a study Feb. 19 that highlighted Mackinac Center scholarship, partly because our statistics are widely used elsewhere, and partly because their researchers used a similar measuring technique. Their study is titled “Understanding the U.S. Illicit Tobacco Market: Characteristics, Policy Context, and Lessons from International Experiences.”

Their comprehensive review of the subject — including a look at other scholarship — suggested a nationwide smuggling range of 8.5 percent to as much as 21 percent. The report, using the Mackinac Center’s 2013 data, estimates the national smuggling rate at 13.5 percent.

A few other numbers from that study jump out at us. It estimates the state of Washington’s 2010-2011 smuggling rate at 45.5 percent, nearly identical to our own most recent estimate. In other words, the Mackinac Center and the national academy, working independently, measured a smuggling rate for Washington nearly identically. Even if both groups are off by 15 points, it is safe to say the Evergreen State has a real smuggling problem.

All of these numbers point to significant problems for policymakers who have honestly believed they are improving public health by raising excise taxes. In fact, their hopes may be diminished by those very taxes when people search out lower-cost alternatives.

A 2014 study in the Journal of Economic Inquiry titled “Do Higher Tobacco Taxes Reduce Adult Smoking” sums up our argument well. The authors write: “Considering all the evidence, we conclude that there is insufficient justification for the widespread belief that raising cigarette taxes will significantly reduce cigarette consumption among adults, even young adults.”

A better tack for policy makers is to stop raising cigarette taxes, and in some cases to cut them.

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Michael LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Todd Nesbit, Ph.D., is a senior lecturer in economics at The Ohio State University and a member of the Mackinac Center’s Board of Scholars. Permission to reprint in whole or in part is hereby granted, provided that the author and the Mackinac Center are properly cited.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

News Story

Charter Schools’ Record of Doing More With Less Validated by Stanford Report

For some Michigan families, the best hope for education lies in an unlikely source. There is a system of schools that helps students learn more, at a lower cost. These schools do not have the luxury of guaranteed enrollment — students must choose to attend. And if these schools fail to deliver on the promises made to justify their existence, these schools are shut down.

Despite their increased accountability, and despite receiving less money, many of these schools have a mission to serve students in some of Michigan’s poorest neighborhoods. Incredibly, these schools have posted even greater educational gains for their students than their conventional counterparts have done for their own students.

These schools are charter schools. And though Michigan charter schools have a demonstrated track record of producing better academic outcomes at a lower cost, there is a concentrated, coordinated campaign to block more students from attending these schools.

This March, Stanford University’s Center for Research on Education Outcomes, commonly known as CREDO, released a study showing that Detroit charter students learned significantly more than their conventional-school peers.

The results shouldn’t be surprising: In January 2013, CREDO found that Michigan charter school students learned an average of two month’s more worth of material than students in conventional schools. In Detroit, charter school students did even better, learning three months more per year.

No other examination of Michigan charter schools comes close to the rigor of the CREDO study, because the study examined individual student academic growth, and controlled for many external factors, including student socioeconomic status, gender, and past test performance.

CREDO, which has studied charter schools throughout the United States, said in 2013 that Michigan is “among the highest performing charter school states” the research center had ever studied. This March, CREDO highlighted Detroit as one of four cities that “provide essential examples of school-level and system-level commitments to quality that can serve as models to other communities.”

And yet, critics — including some legislators, some State Board of Education officials, and the Michigan Education Association — have mounted a vocal campaign against charter schools. One columnist has claimed that charter schools “exploit children.” The state superintendent has recently called for stopping new charter schools from opening. And yet, the most rigorous findings on charter school performance have been ignored during this debate.

It is easy for critics to obfuscate the issue.  The most important fact about Michigan charter schools is that they are primarily located in urban centers and enroll a very large share of students from low-income backgrounds. As a result, any comparison of charter and conventional school performance that does not take student socioeconomic status into account is misleading, and cannot be taken seriously.

Limiting charter school growth in Michigan goes against the most rigorous studies of charter school performance. It is true that proposals to stall charter school growth in order to “stabilize” enrollment at conventional schools would protect the current educational system. But in preserving the status quo, officials would be doing a disservice to Michigan families.

Consider Pontiac: Barely half of the district’s students managed to graduate from high school in four years, and Pontiac high school test scores are far below the state average. Not surprisingly, close to 2,000 Pontiac students chose to leave for schools in other districts. Another 3,000-plus students in the Pontiac area have opted to attend charter schools. State officials cannot blame families for seeking better alternatives. Nor should they penalize charter schools for trying to offer a better option.

Those seeking to limit educational choice must explain why they are ignoring the most rigorous studies of charter school performance. And, they must justify their decision to put the needs of school districts ahead of the very families those districts have failed to serve.

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Audrey Spalding is director of education policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Mackinac Center are properly cited.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.