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?”

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”

Revenue from marijuana gets a look

A humorous look at revenue from taxing marijuana is “Dude, Should Marijuana Be Legalized and Taxed?,” by Howard Gleckman, http://taxvox.taxpolicycenter.org/2012/12/06/dude-should-marijuana-be-legalized-and-taxed/

But the $9 billion it reports sounds a little low.  A strong revenue regime – after-tax prices unchanged, with government taking Continue reading “Revenue from marijuana gets a look”

An unintended consequence of alcohol taxes?

The United States did not tax alcohol between the end of the War of 1812 and July 1, 1862, when it started on a path of taxing the heck out of alcohol.  “[T]he importation of opium specially prepared for smoking purposes, which did not exist in 1865, has in latter years increased enormously; rising from 12,554 lbs. in 871 to 77,196 lbs. in 1880, and 298,153 lbs. in 1883; Continue reading “An unintended consequence of alcohol taxes?”

Replace NC Income Tax with Sales and Services Taxes?

Two independent sources tell me that Republicans, who now control the North Carolina Legislature and will soon gain the Governorship, plan to tax all sales and services at a uniform rate.  Nine percent might allow them to repeal the personal and corporate income taxes.  Local taxes could push the total take past 10 percent.

To keep the rate at 9 percent, they would have to tax everything:  hospital bills, prescription drugs, business services like lawyers’, you name it.  Once they make exceptions, the rate has to go up to stay revenue neutral.

Simplicity only, fairness not at all.  We’ll see what happens.  The history of taxation leads me to think fairness won’t be shut out for long.

National Marijuana Tax Revenue — $25 Billion?

Update at Huffington Post.  And there’s a caveat about my numbers being gross (not net of a 280E repeal).

America would probaly not see $25 billion in marijuana taxes, but that’s a straight line extrapolation from the most official estimate around.  According to an official state Fiscal Note,[1] Washington State’s enacted I-502 will raise some $564 million in taxes in fiscal 2015.  Extrapolating that per capita estimate, the revenue figure for the nation would be over $25.7 billion.[2]   That number is too high, probably, but not by an order of magnitude. Continue reading “National Marijuana Tax Revenue — $25 Billion?”

How Marijuana Taxes Are Not Like Cigarette Taxes — Yet

On Sunday’s MSNBC’s Up with Chris Hayes, Tony Dokoupil said, “Canada had to repeal a tax that was $5 an ounce in the nineties – because of evasion.”  So he reasons that marijuana selling at retail for $100 an ounce pre-tax cannot bear a $25 retail tax.  I think that’s way wrong.

Sure, people may not pay $5 per ounce extra a for tax-paid cigarettes when a reliable competing product comes hermetically sealed in a recognizable branded package, designed by a deep-pocketed manufacturer to prevent counterfeiting and having borne tax payment somewhere.  Virtually all the evasion of tobacco taxes in the developed world involves tax-paid product crossing jurisdictional borders.

For marijuana, there is no analogy to the pack of Lucky Strikes Continue reading “How Marijuana Taxes Are Not Like Cigarette Taxes — Yet”

A Surprising Tax Preference for Beverage Alcohol

I have the habit of thinking alcohol for the tax system is like low hanging fruit – easy to find and measure, and popular to tax.  Two arguments for taxing alcohol don’t exist for most commodities:  that alcohol consumption damages innocent parties and creates a price for society to pay, and more controversial, that we need to protect people from themselves and their longings.

But the Economist of November 24 page 72 says Korea goes in a quite different direction.

Punitive tariffs prevent brewing experimentation. The Korean taxman treats malt, hops and yeast as beer ingredients, which are subject to low import duties. Continue reading “A Surprising Tax Preference for Beverage Alcohol”

280E Tax Ignored in Federal Marijuana Bill

So several Members of the House introduced a bill, reproduced below, to keep the Federal Government out of states that have legalized marijuana.  They neglected to fix a huge tax problem for any state-legal marijuana business, Code section 280E, described by a source in the medical marijuana business this way:  “#1. The federal tax situation is the biggest threat to MMJ businesses and could push the entire industry underground.”  http://mmjbusinessdaily.com/marijuana-business-conference-wrapup-36-tips-lessons-take-aways-for-the-cannabis-industry/

Maybe the sponsors didn’t want the bill referred to the Committee Ways and Means.  Not that Continue reading “280E Tax Ignored in Federal Marijuana Bill”