Having looked at deliberately low Post-Prohibition federal alcohol taxes as a model for low early cannabis taxes (with the RAND Vermont report alluding to a “tax holiday”), I was glad to see some state history pointing in the same direction. The following is from “The Failed Promise of Legal Pot,” By Tom James, in the Atlantic:
“Rear Admiral Luther E. Gregory . . . held the solution to a much earlier black market in Washington state.
“By the beginning of the 1930s, America’s alcohol prohibition was coming to an end. The beneficial effects predicted by prohibition boosters—from reduced crime and mental illness to lower taxes—had not wholly materialized. Instead, violent gangs had taken over the supply chain as well as significant swaths of U.S. cities. Speakeasies sprang up as quickly as the police could close them down, and gangsters massacred opponents in the streets.
“In the throes of the Great Depression, legislatures all over the country were also beginning to see alcohol as a way to fill state coffers. Slogans like “Give us beer and balance the budget!” appeared on parade floats and posters. Everyone wanted to bring liquor back—and the lawmakers wanted to do it with a hefty tax. The only problem was that the bootleggers were well established, and fixing prohibition meant finding a way to force illegal operations to go straight or close their doors.
“When repeal finally came, Washington’s then-Governor Clarence Martin asked Admiral Gregory to head the state’s new Liquor Control Board. Critically, Martin gave Gregory carte blanche to mold the new policies as he saw fit. Gregory took up the challenge—and surprised everyone.
“First, instead of cracking down on bootleggers and speakeasy operators, Gregory gave them amnesty and issued licenses to anyone willing to play by the state’s rules. Second, backed by the governor and his influence in the Senate, Gregory arranged for alcohol taxes to be set as low as any in the nation, which allowed those willing to follow the law to keep a significant amount of their profits, and it made room for legal operators to compete with bootleggers’ prices. Third, Gregory punished anyone who broke the rules—even once—with an iron fist, blacklisting them from ever making or selling alcohol in the state again.
“Predictably, this caused some turmoil in a legislature anxiously awaiting an infusion of cash from liquor sales, but the governor backed Gregory. Faced with a low cost of entry and legal profits, bootleggers and speakeasies around the state mostly turned legitimate. Meanwhile, the few remaining stragglers were quickly put out of business, and drinkers flocked to a competitive legal market.
“That might have been the end of it, but there was one more piece to Gregory’s plan. After holding down taxes—and thus prices—for three years, Gregory abruptly raised taxes so much that they were among the highest in the nation. The price of booze went up, of course, but people kept buying legal liquor and beer. There was no alternative left. Gregory had broken the back of the black market.”
The Center for New Revenue 