Tobacco use has plummeted in the past few decades, due to high taxes, bans on advertising and generous contracts for public relations companies to vilify smokers - but there are still more than a billion people worldwide who regularly use tobacco, including many who purchase the products illicitly.

Oddly, governments want to crack down on illicit cigarettes because they don't get the tax revenue from the products they tell people not to use, while they prepare more regulations on tobacco.  The U.S. Food and Drug Administration wants to tighten restrictions on tobacco products so they mandated a report by the National Research Council and the Institute of Medicine to examine the U.S. and international markets for illicit cigarettes and the evidence on how illicit markets react to various policies and regulations.

The good news for government is increasing taxes and regulations is unlikely to boost illicit tobacco revenue. People are not driving to Indian reservations of Virginia with tractor-trailers to avoid taxes. It seems odd that the government wasted money even having the report done. There is no counterfeit or bootleg cigarette market worth mentioning in the US, but it is obviously costing more money in high-tax states like New York. 

The report can't say for sure how much it is, but they say it could be 8.5 percent and even broadly guess it could be 21 percent which, if so, would mean it has nearly tripled over the past two decades. It is not criminal organizations, it is someone who is driving back to their home state and stops in Virginia and legally buys cigarettes, because Virginia is not losing any money, only the states with high taxes are. Thus, it is not "illicit" no matter how the report tries to frame it.

In Europe, taxes are really high and the black market is also lucrative, and that is the reason not to raise taxes in the US even higher. States do lose money if the black market becomes a real thing due to over-taxation. Spain spent a lot of money reducing bootleg cigarettes from 15 percent in 1995 to 2 percent in 2001 but they could have avoided the problem by not having taxes so high

"In the future, non-price regulation of cigarettes - such as product design, formulation, and packaging - could, in principle, contribute to the development of new types of illicit tobacco markets if incentives for such illicit trade are not controlled or mitigated," said Peter Reuter, committee chair and professor in the school of public policy and department of criminology at University of Maryland. "However, based on the limited available evidence we reviewed, if new regulations were introduced, any increase in the demand for illicit tobacco may only be modest."