A couple of months ago, Minnesota tacked an andditional $1.50 per pack sin tax on cigarettes. Smokers in that state near the North Dakota border took the rational option of going across the state line to buy their smokes at much cheaper prices. This is one "laboratory of democracy" lesson other states should heed (and luckily most of our leaders here seem to get it):
One of the most startling things about this now all-too-common phenomenon is the way that it distorts the normal ebb and flow of competitive markets. There was a time, back in the day, when businesses selling a given product would engage in competitive pricing competitions to attract customers, much to the benefit and delight of shoppers. The “gas wars‘ of the 1960s were one of the best examples. But in the modern era of sin taxes – including both tobacco and gas – such competition is pretty much a thing of the past. If you are a convenience store owner in Minnesota near the border of North Dakota, you can’t lower your prices, even temporarily, to bring your customers back. When the profit margin on a pack of smokes has already plummeted, you simply can’t slash your price at the register further to make up for an unfair advantage provided by your own state government.
The result, as always, is that your customers cross the state lines, your business profits sag, government revenues fail miserably to meet expectations and the neighboring, more tax friendly state reaps the benefits. Congratulations, Minnesota. You’re still solving problems the old fashioned way, aren’t you?
Of course, having a competitive advantage over bordering states is only a beneficial byproduct of keeping taxes reasonable. The chief reason for a state to do it is to respect its own citizens instead of putting up roadblocks against their pursuit of happiness.