Revenue loss from 280E

 

3 scenarios:

  1. Repeal of the 280E would be scored as a revenue loser by the Joint Tax Committee.
  2. Repeal of the Controlled Substances Act, or legislative removal of marijuana from the CSA’s bad list referred to in 280E, would be scored as a revenue loser by the Congressional Budget Office in coordination with Joint Tax.   For example, when Congress enacted requirements that the motor fuel fleet have certain specified amounts of biofuels, the budget needed to take account of the tax benefits for ethanol and biodiesel.  So, as that legislation proceeded, Joint Tax worked with the CBO in reporting its budgetary cost.
  3. Administrative removal of marijuana from the CSA’s bad list would entail adjusting the base line down to reflect the revenue loss.  In that case, the deficit would be known to be bigger because of administrative action.  This third scenario does not bring into play restraints on Congressional budget busting, since Congress does not act.

Loosening rather than repeal or effective repeal of 280E would be scored similarly, but with less budget damage.

++++

I’ve been saying that cannabis reformers might put banking reform ahead of 280E repeal on their wish lists, because cutting taxes is hard in a time of deficits. Repeal by Act of Congress would be a revenue loser, and would have to be paid for. The obvious way to pay for it is a federal marijuana tax.

But Dale Gieringer of California NORML points out that New York Times calls for removing marijuana from the Controlled Substances Act altogether. That would take away the 280E problem for the industry, because 280E operates by cross-reference to that Act. Here’s the kicker: If 280E is removed administratively, the revenue loss won’t be scored;  the loss won’t slow down an administrative solution. (Administrative actions, unlike Acts of Congress, don’t face up-front budget scrutiny. No wonder the debt keeps mounting up.  The revenue loss from administrative action should show up as an eventual adjustment to the “base line,” which should show how much the deficit grew as a result of the 280E tax going away.)

Still, if the NYT thought the 280E cannabis tax needed repealing, why didn’t it say so?  The Times editorial board didn’t list over-taxation as a problem.  That’s a far cry from the typical industry brief, which puts 280E right up there with banking as problems plaguing the industry. If the writers at the Times thought 280E was a problem, they were mighty quiet about it.

I see some positive aspects of 280E, but also see the appeal of low taxes early in the legalization process as businesses struggle to compete against the black market, with high taxes later, when businesses can afford them. So a low tax period might be useful, before any new federal excise tax comes in.

At this point, banking reform stills seems like the next domino – the easiest problem to fix. The Senate Appropriations Committee is already on board for banking reform.  But maybe the industry can find work-arounds, as they are already doing in Washington state.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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