[See UPDATE from 2 Feb 2018 at the end.]
Amanda Chicago Lewis has a thought-provoking article in Rolling Stone that points out the federal government is making money from federally illegal marijuana. I appreciate her allowing me to take issue with her thought — “the feds might be making way more money by keeping weed illegal than they would by legalizing” — by letting me say, “’The federal government is not going to do this for zero,’ Oglesby says.”
She could easily be right – if legalization entails repeal of 280E and no new tax. I just think federal legalization will need a tax increase to pull it along. Now I could contemplate 280E not being repealed, but a new tax still being necessary. I’d think that makes more sense than repealing 280E totally (some fine-tuning would be useful to allow deductions for legal, accounting, banking, and other expenses that don’t relate to selling) and creating a big new tax scheme that brings in more revenue than 280E would bring in. That’s a political guess. So far, we’ve seen no commercial legalization without taxation. Taxes are a sweetener that makes legalization easier to swallow. That’s my take, and I appreciate her letting me state it.
Maybe I said this: “Pat Oglesby, an attorney who specializes in cannabis tax policy and worked for the JCT from 1982 to 1988, says that the $5 billion estimate sounded far too low.”
But the style I routinely stick to would have me saying something like “I expect $5 billion might be on the low side.” The reason I think that might be low is that I think more states will legalize, and more sellers will come out of the shadows, so 280E repeal would cost more in the out years. I’m not sure, but I don’t think Joint Tax staff can get into the business of predicting changes in the law. I’m free to predict a change, so I come out differently.
More on 280E revenue:
NORML on 280E https://newrevenue.org/2017/ 02/16/5139/. By the way, growers aren’t hit by 280E much – they don’t advertise or have many selling expenses. Retailers bear almost all the 280E burden.
If you have lots of time to get deep into the weeds of cannabis revenue, Part II of https://newtax.files. wordpress.com/2015/01/ supplemental-thoughts-about- revenue-from-marijuana-in- vermont-16-january-2015-in- pdf.pdf will take a while to get through.
The National Cannabis Industry Association has a paper saying repeal of 280E would be a revenue gainer (!) but I can’t find it just now. UPDATE: I thank Brett Stone, who sends out a donor-financed newsletter (email@example.com), for telling me it’s here. The NCIA says, for instance, “capital invested in Colorado, which provided the initial growth in the legal market, was invested prior to knowing what the IRS’s enforcement attitude and the associated effective tax rates would be. Now that investors are aware of the high tax cost of operating in this industry, it has made raising capital more challenging.” Well, there seems no shortage of people willing to apply for licenses wherever states and localities will issue them. When thinking about industry structure, it’s worth thinking about a low-profile, non-capital intensive industry that’s labor intensive. One fix for 280E would allow deductions of worker pay up to say $15 an hour.