If you try to tax drugs, there will still be a significant black market. Just look at cigarettes - legal, but huge black market because there is money to be made undercutting legitimate vendors with taxed goods.
I don't know, man. Most folks I've met that smoke cigarettes just buy them at the store. Occasionally, when folks travel, they pick them up at a lower tax state (or country). I'm not convinced the black market is really 'significant' since I'm guessing most folks go the legal route. It is just there.
But then again, there is a somewhat thriving black market for detergent and soaps: In the US, Tide is often targeted, as are branded department store body soaps, shampoos, and razor blades. This isn't because soaps and things are taxed.
Also, does tax make up for all of the risk markup? I very highly doubt it. IIRC, prices have gone down in places with legalization, in no small part because the whole process can be done out in the open.
As I understand it, the primary customers of the cigarette black market are corner stores. The people who ultimately end up smoking those cigarettes don't know anything about it.
In New York there's a $4.35 excise tax on a single pack of cigarettes. In Missouri it's $0.17. That huge delta provides a big opportunity for arbitrage.
A large part of the cost of illegal drugs comes from all the effort needed to avoid law enforcement along the supply chain. I'm sure a legitimate operation could save enough money from being able to just have large scale production and delivery in the open without having to hide it to make up for a few % of tax.
I think most of the cost is because of the personal and inventory risk that everyone involved carries. With 100x markup, seizures at borders aren’t as big a deal.
And there are lots of people involved, each one adds markup.
The cigarette tax rate in New York is 2500% higher than the tax rate in Missouri. That's more than a few %, and that's just the state tax; NYC has their own additional tax that increases the difference even more.
A black market will always exist as it does for anything. The problem we're trying to solve is the power of a huge market solely tapped by criminal enterprises. You don't see narcostates formed by black market tobacco or alcohol.
Yes. Though to be even more precise, the benefits of going outside of regular channels have to outweigh the burden of the regulation.
Eg some countries have black markets in currency, because of tight controls. Singapore doesn't really have black markets in currency, despite some (light!) regulation and taxes on money changers.
