Why tax is not like criminal law

Punishment for drug crimes should not be based on the weight of the drugs; instead, punishment should be based on the profits that criminals get, says Mark Osler.  Kingpins should get greater sentences than mules.  The problem is that prosecutors can’t readily “prove the amount of profit made by an individual defendant.  It wouldn’t be as easy as snatching up mules and street dealers.  But then ‘easy’ and ‘justice’ rarely rest comfortably with each other.”

A criminal case takes days if not weeks of person-time to handle.  So long as a drug is illegal, some extra time to figure out the place of the accused in the supply chain would indeed be useful -– so as to punish kingpins more than mules.  Figuring out the amount of profit, though, would prove hard if not impossible.  Apple, GE, and Starbucks shift profits from the United States to tax havens with impunity –- and they have to keep books to report to shareholders.

But when a drug is legal and taxed, the tax system can’t afford weeks, days, or even hours examining each of thousands of transactions.  So priced-based excise taxes tend to fail.  “Transfer pricing” –- setting artificial prices to beat taxes — is the key to the success of Apple, GE, and Starbucks.  Colorado, which supposedly has a price-based wholesale marijuana tax, abandoned it in favor of a weight-based tax.  We can’t figure out prices, much less profits.

Osler’s approach may be valid for the fairness needed in a criminal case, but it doesn’t carry over to tax.  In tax, simplicity is the enemy of fairness; if fairness is impossible to figure out, then forget it.  If we can’t make taxes fair with confident precision, let’s make them simple.


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