At the National Tax Association conference in Tampa earlier this month, my panel on marijuana tax policy was a sideshow. The hot and trendy topic was taxation of wealth.
It has always been better to tax wealth than to tax income. As the old adage says: Money is like manure. When it’s piled up, it stinks; when it’s spread around, it makes things grow. Discouraging income is kind of weird. But we can observe income much more readily than we can observe wealth. Income moves, so it should be visible; wealth stands still, so it can be invisible. This is the distinction between flow and stock. An income tax is a weak proxy for a wealth tax, but it may be the best we can do, so that’s what we’ve got.
So an income tax is like a tax on weed by weight. Taxing marijuana flower or any raw plant material by THC appeals to drug policy purists, but it’s not practical, for reasons easily findable on this website. Taxing raw plant material is much easier to do. Like the income tax, it’s not theoretically great, but it kind of works. A more perfect tax may not.