Madam Chair, and distinguished members of the Budget and Taxation Committee:

Thank you for the opportunity to offer testimony on Senate Bill 143, the Tobacco Tax bill sponsored by the Administration. The Libertarian Party of Maryland wishes to go on record as opposing the measure. Please do not infer by our opposition that we wish to see teenagers hanging on street corners with cigarettes dangling out of their mouths. We do not. In fact, the goal of curbing teenaged smoking is laudable, and one we can accept. But, we are obliged to speak against this bill on three different bases: economic, practical, and moral. As a practical matter, raising "sin" taxes to cut a particular "sin" very rarely, if ever, works. Enclosed with my testimony, you will find articles to expand on the statements I will make today. I urge you to consider them when trying to determine the tax consequences of this action. They make fascinating reading. Let me begin with the most talked-about "non-success" story: Canada. In testimony before the U.S. Senate Democratic Task Force on Tobacco on May 4, 1998, Robert A. Robinson, Director, Food and Agriculture Issues, Resources, Community, and Economic Development Division of the federal General Accounting Office said: While citing the effectiveness of past efforts to reduce smoking by increasing cigarette taxes, Prime Minister Chretien stated in February 1994 that the widespread availability of relatively inexpensive contraband tobacco was negating government controls on the distribution, sale, and consumption of cigarettes. According to the Canadian Prime Minister, as the portion of the Canadian market supplied by smuggled tobacco increased, the average price paid for cigarettes dropped. Access to cheap contraband tobacco undermined the government's health policy objectives of reducing tobacco consumption, particularly among youths. He added that he believed that Canadian tobacco manufacturers were aware that tobacco exports to the United States had been reentering Canada illegally and that these manufacturers benefited directly from this illegal activity. "Cigarette Smuggling: Information on Interstate and U.S.-Canadian Activity p. 7  In February, 1994, the Prime Minister reduced the federal tax on cartons of cigarettes by $5.00 [Canadian] and matched provincial tax reductions to a max of $10.00. "Although taxes in these provinces (Quebec and Ontario) have increased slightly since, once the initial tax cuts took effect, the U.S.-Canadian contraband cigarette market dried up. . . [and] U.S.cigarette imports from Canada dropped about 96 percent from 1993 through 1996." Ibid. To further make the point, in the monograph--also in your packet--entitled "Will Government's Crusade Against Tobacco Work?" from the Washington University in St. Louis, author Dwight R. Lee said: The experience of Canada is also instructive. It was widely reported that smuggled cigarettes made up 30 percent to 50 percent of the Canadian market. Taxable cigarette sales nose-dived as taxes increased during the mid-1980s and early 1990s. At the same time, massive cigarette-smuggling was making up for the apparent decline in smoking as measured by legal, or tax reported sales. In the end, when all cigarettes were counted, the Canadian smoking rate fell no more than in the United States during the same period. . . Canada cut its tax rate not only because smuggling was greatly reducing the sale of taxable cigarettes, but also because of concern over youth smoking. Contrary to the usual argument, many Canadian officials concluded that high taxes made it more difficult to control teen-agers' access to cigarettes. To explain the tax cut, Canadian Health Minister Diane Marleau said, "It 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 19." page 4, July 1997. And, in a surprise to me, that same monograph noted what happened in Maryland after the 1992 tax rise: Similarly, Maryland increased its cigarette tax by 20 cents per pack in 1992, and in the following year sales of cigarettes taxed in Maryland fell by 10 percent. But, as in Michigan, the percentage of smokers in Maryland increased from 20.4 percent to 21.2 percent from 1993 to 1995. [Note: he's quoting Federal CDC reports.] Obviously, the increase in cigarette sales in the low-tax states did not reflect large increases in smoking in those states. Rather most of the increase in cigarettes sold in the low-tax states was going to supply smokers in the high-tax states. Ibid, p 3. The map on page 3 of the GAO report shows state tax rates as of January 1, 1998. It is very helpful to look at the tax rates of our neighbors,especially Virginia, West Virginia, and Delaware, all three of whom have less than a quarter taxes on each pack of cigarettes. Even the tax in Pennsylvania, according to this map, is a nickel less than ours. Only DC and New Jersey have higher taxes, and, if this increase goes through, our tax will be higher immediately and even worse one year hence. What about the economic impact? I know that the Governor believes this will bring millions of dollars in for more programs "for the children." But, will it really? We're not so sure. Quoting again from the GAO report: In 1997, the state of Washington estimated the extent of interstate smuggling activity in terms of tax per day by state--which we converted to the associated loss (or gain) in state tax revenue. Washington State's estimates were derived using an approach that statistically determines how demographic factors, such as income and religious preferences, and differences in tax rates relative to other states affect cigarette sales on which state taxes are paid. The estimated relationships can then be used to simulate actual consumption. [appropriate footnote in text.] The amount by which estimates of actual consumption exceed estimates of taxed sales in a state would then represent the net cigarettes smuggled into that state. Using survey data provided by the Centers for Disease Control and Prevention, we tested the Washington State estimates and found them to be reasonable. On the national level, the Washington State study indicated substantial smuggling from states with low tax rates to states with high tax rates. For example, the estimates of tax revenue losses in the states with the highest sales tax rates at the time the Washington State study was done--Washington and Massachusetts--were $52 million and $61 million annually, respectively. [emphases mine] Differences in the sales tax on regular goods cause a loss of revenue to the state as well. Many people on the Eastern Shore go to Delaware to shop because there is no sales tax. I have been known to make large clothing purchases in Pennsylvania because there is no sales tax on such items. If you're on a tight budget, you do what you can to save costs. So much for the economic argument. Now, let's look at the practical arguments. The proponents say that this will stop teenaged smoking. Oh, really? The Canadian Minister of Health doesn't seem to agree. The articles I have given you today all seem to pooh-pooh the idea as well. 9Senators, we have laws on the books currently that supposedly stop teenaged smoking. They don't seem to be working. I especially found it ironic on Monday night, after the Tobacco Tax rally, a couple of teenaged girls who had obviously been down for the rally were. . . you guessed it,smoking cigarettes on the north steps of the State House! The news media who were alerted to this situation declined to do more than offer a wry smile. It's not politically correct enough, I guess. Who was protecting these children? The simple fact is that there is not enough law enforcement to go around to enforce the laws we currently have for teenaged smoking. But, that's not the only practical problem with this bill--it's the unintended consequences. First, what about the impact on those who smoke who are not teenagers? You're taking more money out of their pockets that could be spent on other items. Many of the people who smoke are poor, and this tax would have a grievous impact on them. Second, under Maryland law, bringing in any more than two packs of cigarettes without a Maryland tax stamp is smuggling. How many people, when they visit Virginia, for example, buy a carton of cigarettes, not having the foggiest idea that they are smuggling if they come back into Maryland? They just happen to be over there and buy smokes, and may be saving money by buying a carton.. If we can't stop teenaged smoking by law enforcement, how are we going to stop smuggling of cigarettes through our porous borders? I remember sometime over the summer reading an article about how Washington State deals with the smuggling issue. Unfortunately, I looked for it, but couldn't find it. It seems that where I-90 goes into Idaho from  Washington State, there is a convenience store that does a land office business in cigarettes. The tax differential is 53.5 cents per pack between the states. Agents from Washington State are watching people shop, come out of the store, and cross the border back into their home state. Several miles later, the helpful Highway Patrol is stopping these folks and charging them with smuggling, along with getting them for massive fines. Are the Maryland State Police also going to be used as Customs Agents or Revenooers? The laws which really protect the citizenry on the highways are not being enforced enough. We have "road rage" incidents which, in reality, are more specifically reckless driving. People are getting killed and there aren't enough police to monitor it all. Is there the slippery slope of a police state in your future? All three of the articles I'm giving you also point out what has not been mentioned yet: the majority of the smuggling is being done by organized crime. I especially recommend "Memo to the Mafia: Smuggle Cigarettes" from Regulation magazine. It presents examples from Prohibition and other opportunities for underground marketing, including in cigarettes, and speculates about what would happen with a major tobacco tax increase nationwide. All this is coming from the same Governor who opposes casino gaming or slots because it might bring in organized crime. Finally, the moral argument. Libertarians believe in the principle of self- ownership and self-government extended to all adults. If I choose to smoke, I should be allowed to as long as I am not harming others by my doing so. In that regard, I would be able to willingly take on a risk to my own health, and, as an adult, it should be no one else's concern. I'm not going to smoke in my apartment if someone objects, I'm not going to light up in my car if someone else is around if they object, and I certainly won't light up in someone else's space without permission. But, guess what? I'm a non-smoker! I'm allergic to tobacco smoke and can't stand the smell of it. People who visit my apartment go to the smoking section on the balcony if they want to indulge. My car is a non-smoking car, and I rent non-smoking hotel rooms. I see this as a personal freedom issue. In talking to some of the teens Monday night, I got pretty much the same answer: "Well, smoking is bad for people, and I don't think they should do it." My simple question in return was, "OK, so who are you that you should impose your will on everybody else?" I would never dream of using government force to stop someone else from doing something legal and voluntary that I don't choose to do, and that is precisely what this bill is designed to do. Marylanders are already over-taxed and over- regulated, and it's time to fight steps to increase those two conditions. In conclusion, Senators, this bill is a bad bill. It's bad economic policy, it's bad practical policy, and it's bad for Maryland. It's bad economic policy because the major disparity in tax rates will only encourage people to smuggle. It's bad practical policy because the law is not being enforced as it is in regards to teenage smoking, and in order to stop a lot of smuggling, you'd need to set up a scheme like Washington State has done, at the risk of innocent people on the highways in other areas. It's also an open door invitation to organized crime elements that you don't care to have. It's bad for Maryland. I urge you to defeat this bill.