NYT calls for VAT. Is that new?

The VAT has two kinds of complexity:  who is exempt, and what?  Microbusinesses (who?), and medicine (what?), for instance?  Lots of countries have handled these issues, with less furor than with the income tax. (Rates are just a variation on exemption — “what” should bear a low rate instead of no tax?)

The New York Times is up for it:  “Mr. Obama would be wise Continue reading “NYT calls for VAT. Is that new?”

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Tax evasion and packaging

The first limitation that I know of on the size of packages for American alcohol happened in 1935 or so, with the gallon bottle rule for spirits.  Tun Yuan Hu, The Liquor Tax in the United States, 1791-1947: A History of the Internal Revenue Taxes Imposed on Distilled Spirits by the Federal Government (New York: Columbia University, Graduate School of Business 1950), page 98.

As WA and CO work on marijuana rules, they may consider a maximum package size less than the one ounce that adults may possess legally. That rule would track the liquor rule; it would work against tax evaders; it would add value, money, and work to the local economy — in a way that would be tax-deductible even under the harsh rule of Section 280E, because packaging is part of cost of goods sold.

Tax and Theology

When I moved from private law practice into government work in 1982, I knew almost nothing about tax policy.  Luck landed me on a staff with two of the giants of international tax, David Brockway and Richard A. Gordon.  Slowly, they got me to understand that tax policy is like religion:  I can’t prove that mine is right or that someone else’s is wrong.  Maybe I suspected that, and certainly I should have known, but my values – the rich should pay more than the poor; business should have no incentive to move out of the taxing jurisdiction; activities society disapproves of might be targets for taxation – are just values, not truths.

Compromise has a bad name in some circles, but in taxation, results sometimes are not binary — black or white — but are instead a matter of how much.

A clash of unprovable values is playing out in the fiscal cliff debate, which will produce no permanent solution.

Marijuana Legalization and Tax: I Was Wrong

For a couple of years, I labored (literally) under the impression that proposals to legalize marijuana might need high revenue to pass.[1]  I got that impression from the repeal of alcohol Prohibition, where “revenue considerations, when joined to the desire to eradicate the evils that grew out of prohibition, . . . gave the repeal movement its powerful motive force, leading finally, on December 5, 1933, to the abandonment of the dry law.”[2]

Well, in November balloting on marijuana legalization, voters in Washington faced a relatively strong tax scheme; voters in Colorado, a relatively weak one.[3]  Both proposals passed with strong majorities; Continue reading “Marijuana Legalization and Tax: I Was Wrong”

The Federal 280E Marijuana Tax: Distorting Business Decisions

Beyond the incentive to bifurcate businesses, http://www.forbes.com/sites/anthonynitti/2012/10/25/the-top-ten-tax-cases-of-2012-10-the-irs-wages-war-with-the-medicinal-marijuana-industry/,  tax Code section 280E creates an incentive to shift expenses into cost of goods sold, the only deduction it allows to state-legal marijuana business. This tax distortion is something its authors Continue reading “The Federal 280E Marijuana Tax: Distorting Business Decisions”