Gov. Martin O'Malley promotes entrepreneurship. Kyun Hong seems to have answered the call.
According to comptroller's agents, he packed his Severna Park house with cigarettes and snuff bought across state lines and resold them to Baltimore retailers without paying Maryland's tobacco tax.
If he is a tobacco smuggler - he hasn't been convicted and didn't respond to a detailed message left at his house - he has competition. The doubling of Maryland's cigarette tax two years ago has inspired uncounted numbers of small businessmen to do what comes naturally: Buy low and sell high.
Nowhere else in the country do smugglers need to drive so short a distance to make so much money. Thanks to the abyss between Maryland's cigarette tax and those of its neighbors, a pop across the Potomac for a van-full of smokes can easily net $5,000, even if you split the profits with the Maryland stores that buy them.Lawmakers hoped to increase revenue and discourage smoking when it raised the tax. But it also seems to have energized the Maryland underworld and increased crime. The tax increase has delivered benefits, but its costs are rising, too.
Tobacco-smuggling busts roughly tripled in the first fiscal year after Maryland's tax went from $1 to $2 a pack. They're on track to equal those levels again this year, but traffickers nailed by tobacco-enforcement agents are probably only a teeny portion of what goes on.
Maryland may be No. 1 in the country in cigarette smuggling, according to calculations by Michigan's Mackinac Center for Public Policy, a pro-markets think tank.
Hard data on smuggling are nonexistent because so much is undetected. But Mackinac researchers compared legal cigarette sales with each state's actual level of smoking as shown by federal health surveys. The difference was probably smuggling.
They also accounted for tax increases and the proximity of low-tax states to project how higher taxes would boost smuggling. With next-door Virginia taxing smokes at only 30 cents a pack, the Mackinac center calculates, as many as half of all cigarettes consumed in Maryland these days are illegal.
People who supported the tax increase cheer what looks like an amazing plunge in Maryland smoking. But they're looking only at official figures.
"This shows that the dollar tax increase did exactly what public health advocates predicted," Vincent DeMarco, president of the Maryland Citizens' Health Initiative, said a few months ago.
Come on, Vinny. Legal sales have plunged because smokers and smugglers save $17 a carton by driving south and loading up the trunk.
The $2 tax has surely dissuaded some teens from starting to smoke, and for that reason alone, it can be defended. But the 18 percent drop in official cigarette sales that took place after the tax increase does not mean Maryland went on a health binge. Nationally, cigarette sales have been declining by 2 percent or 3 percent per year.
Meanwhile Maryland is nurturing another thriving, illegal industry. Enforcement agents seized $140,000 in illegal tobacco from Hong's house, said Jeff Kelly, director of field enforcement for Comptroller Peter Franchot.
"It was just piled up," he said. "It formed its own hallway. It was hard to get around."
Officials also got what might have been a good look at Hong's distribution system - a list of 54 Baltimore shops that they took to be customers or potential customers. That gives an idea of how pervasive illegal sales may be.
As of Tuesday, Franchot's people had visited most of the stores and busted half a dozen for having untaxed tobacco.
Tobacco smuggling isn't as violent as drug smuggling, but wait: According to Kelly, some dealers are switching from heroin and cocaine to tobacco because it's easier and just as lucrative. Sometimes law-enforcement officials report links between tobacco traffickers and terrorists.
These entrepreneurs aren't doing Maryland any good. Kelly's office has fewer than two dozen people to stop tobacco smuggling. The same folks have to track liquor and gasoline sales, too.
Last week, I wrote a column supporting an increase in Maryland alcohol taxes, so maybe you're wondering about the apparent flip-flop. But Maryland's booze taxes are way below those of its neighbors, and alcohol is harder to smuggle.
Like all politics, taxes are the art of the possible. The cigarette-smuggling boom shows yet again that policies have side effects, and Maryland does not operate in a smoke-free vacuum.
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