Tuesday, August 12, 2008

Maryland, cigarettes, the Commerce Clause, and the lash!

Maryland politicians are remarkable folks.
Politicians in Annapolis are scratching their heads wondering what happened to all those chain smokers who were supposed to help balance Maryland's budget. Last year the legislature doubled the cigarette tax to $2 a pack to pay for expanded health-care coverage. Eight months later, cigarette sales have plunged 25% and the state is in fiscal distress again.

A few pols are pretending to be happy that 30 million fewer cigarette packs have been bought in the state so far this year. As House Majority Leader Kumar Barve put it, fewer people smoking is "a good thing." Yes, except that Maryland may be losing retail sales more than smokers. Residents of Maryland's Washington suburbs can shop in nearby Virginia, where the tax is only 30 cents a pack, and save at least $15 per carton.

The Maryland pols are so afraid this is true that they've made it a crime for residents to carry two packs of cigarettes that weren't purchased in the state.

Let's examine two things here: first, the dubious morality of relying on smokers to fund government, and what happens when you raise the rent on those smokers. Second, how in the hell can this be consitutional?

On the moral point first: government, in its infinite wisdom, taxes certain products at higher rates than typical consumer goods. These can generally be considered "consumption taxes"--if you are going to buy these products, government is going to tax you because there are increased costs associated with your using the products. Gasoline, as an example, is extremely useful to the end user, but there are costs associated with consumption of gasoline, so it's only fair for the consumer to shoulder the burden of those costs through taxes. With cigarettes, arguably the end consumer should pay more per pack because of the costs associated with treatment of smoking-related illnesses amongst the pool of sick people who rely on Medicare or Medicaid for medical treatment.

The problem, of course, is that government is greedy--in the case of Maryland, instead of using the money to offset costs related to tobacco use, the legislature expanded the state-financed health care benefit, after raising the tax to $2.00 per pack. Well, of course people who have access to less-expensive cigarettes will go elsewhere -- in this case, just across the border to Virginia.

Now, there is absolutely nothing illegal about a Maryland resident purchasing cigarettes, or any other lawful product, in Virginia -- people do this every day by catalog or internet shopping. What Maryland has now done, however, is criminalize those who are engaging in perfectly normal and legal behavior for failing to pay a consumption tax. In other words, if this criminal statute passes muster, then any state can impose criminal liability on people engaged in perfectly legal interstate commerce based upon how much money is spent. If this is legal, what's to keep Virginia from saying "you can buy wine in Maryland, but any more than two bottles and you're a criminal." Or to keep Ohio from saying "if you buy clothing in Kentucky and avoid Ohio retail sales tax, then if you buy more than two shirts, we're gonna lock you up."

This leads to the second point of this post: the US Constitution doesn't permit this type of law.
The Congress shall have Power .....

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

The US Congress, and it alone, can regulate trade amongst the states. States cannot impose restrictions on trade from other states, such as import duties, prohibitions (except in limited circumstances, like diseased meat), or anything like that, unless the State itself is a market participant. Here you go:
Under the resulting protocol for dormant Commerce Clause analysis, we ask whether a challenged law discriminates against interstate commerce. [cits.] A discriminatory law is "virtually per se invalid," [cits.], and will survive only if it "advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives," [cits.]. Absent discrimination for the forbidden purpose, however, the law "will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." [cits.]. State laws frequently survive this Pike scrutiny, see, e.g., United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. ___, ___-___,127 [*1809] S. Ct. 1786, 167 L. Ed. 2d 655 (2007) (slip op., at 14-15) (plurality opinion); Northwest Central Pipeline Corp. v. State Corporation Comm'n of Kan., 489 U.S. 493, 525-526, 109 S. Ct. 1262, 103 L. Ed. 2d 509 (1989); [***20] Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 472-474, 101 S. Ct. 715, 66 L. Ed. 2d 659 (1981), though not always, as in Pike itself, 397 U.S., at 146, 90 S. Ct. 844, 25 L. Ed. 2d 174.

Some cases run a different course, however, and an exception covers States that go beyond regulation and themselves "participat[e] in the market" so as to "exercis[e] the right to favor [their] own citizens over others." [cits.]. This "market-participant" exception reflects a "basic distinction . . . between States as market participants and States as market regulators," [cits.], "[t]here [being] no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market," [cits.] ("[W]hen a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause"). Thus, in Alexandria Scrap, we found that a state law authorizing state payments to processors of automobile hulks validly burdened out-of-state processors with more onerous documentation requirements than their in-state counterparts. Likewise, Reeves accepted South Dakota's policy of giving in-state customers first dibs on cement produced by a state-owned plant, and White held that a Boston executive order requiring half the workers on city-financed construction projects to be city residents passed muster.

Maryland is not a market participant in the selling of cigarettes. Its criminalizing the possession by its own citizens of more than two packs of out-of-state cigarettes is clearly discriminatory. The program it seeks to fund can be funded through the general budget through the general power to tax its residents. Even if you take the balancing test of Pike, as stated above, its seems to me that the State would lose -- the benefit the state gains by enacting this law is to solve a problem of its own making. In other words, I think the Commerce Clause prohibits state governments from criminalizing otherwise perfectly legal out-of-state commerce in an effort to fix a budgetary problem due to its own unwise choices.

Also, from a policy perspective -- why in the world would a state want to encourage people to smoke in the first instance? That's what needs to happen for the revenue to keep coming in, right?

I'd like to hear the counterarguments--I'm not certain I'm right, but it sure seems like it.