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As the U.S. economic downturn continues, no government budget across the nation, at any level, has been spared from cuts. New York state recently had to slash spending by billions. At the federal level, Congress has been forced to make historic cuts in spending. Increasingly, we are working to maintain security with fewer resources.

These challenging fiscal times demand that governments operate efficiently, in part by collecting taxes owed and cutting wasteful spending. Yet every day, the failure to strongly combat the growing crime of contraband cigarette smuggling deprives governments of billions of dollars in tax revenues — siphoned off by terrorist and criminal organizations. Here’s how it works. Cigarette retailers – the corner store, for example — are required by law to buy cigarettes through a licensed wholesaler. That wholesaler must pay the state sales tax revenue — currently $4.35 per pack in New York.

However, as cigarette taxes have risen — in New York, for example, taxes have increased by more than $3.00 per pack in the last decade — store owners often bypass the wholesaler, acquiring and selling counterfeit-stamped cigarettes. This allows the smuggler and retailer to sell at substantial discounts — and still profit thanks to the margin created by unpaid taxes.

In New York, contraband cigarettes are typically trafficked from Southern states, which have lower or no taxes, or across federal tribal lands, where taxes are not collected. Tax-free cigarette sale on tribal lands, estimated to account for as much as one-third of all brand-name cigarette sales in New York, is supposed to be limited to tribal members. Nonetheless, some tribal lands import enough cigarettes to provide every resident man, woman and child with hundreds of packs per day.