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WASHINGTON, May 12 (UPI) - The Senate Judiciary Committee is debating whether a bill meant to deter youth smoking would create a black market for tobacco.
Today's hearing comes as the Senate prepares to vote on a bill that would hike the federal cigarette tax by $1.10 per pack and impose more than $500 billion in fines on the industry. Supporters say it is a sure way to deter youngsters from starting an expensive and hazardous habit.
But the National Association of Police Organizations wrote committee members Monday, warning that the pending tobacco legislation could ``create a whole new black market opportunity for organized crime.''
Underground markets have already sprouted up in states with high local cigarette taxes, like California, and American Indian reservations, where cigarettes are exempt from federal taxes. Canada was forced to reduce its tobacco tax after a steep price increase created a massive black market.
Market analyst Martin Feldman, of Salomon Smith Barney, warned that raising the tobacco tax by $1.10 would raise the price of a pack of cigarettes to more than $5 within the next five years.
Because the same pack would sell for $1 in Mexico, or $1.20 on the reservation ``gray markets,'' Feldman predicts the new cigarette tax, ``would trigger a massive black market unlike anything we have ever seen in this country.''
The Treasury Department predicts that the tax hike would increase prices by a more modest $1.30 per pack. But Feldman said Treasury analysts failed to consider that the industry will also be trying to offset more than $3.5 billion in penalities imposed on the industry if youth smoking does not decline, as well as $26 billion in annual damage payments for lawsuits and additional fees included in the bill.
Feldman said if the bill succeeds in decreasing the number of smokers, the industry also will compensate by charging more to its remaining customers.
Copyright 1998 by United Press International.
All rights reserved.
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