Author: Pat Oglesby

Quoted in Harper’s

“It’s too hard to adjust taxes quickly enough,” said Pat Oglesby, a North Carolina tax lawyer who was chief tax counsel for the Senate Finance Committee from 1988 to 1990 and who now researches marijuana taxes. “Legislatures love lowering taxes. Getting them to raise taxes is like pulling teeth.” What’s more, if legislators overdo it and set taxes too high, they’ll risk reawakening a black market in untaxed drugs. — Dan Baum, in Harper’s:

Here’s some context, from the article: Continue reading “Quoted in Harper’s”

A cynical look at WA’s tax policy on tips

Taxing cannabis based on price, instead of, say, weight, creates a host of problems, like the free-pot-with-pipe deal, and others discussed in this HuffPo piece. But there are more problems.

Ever give the bartender a big tip hoping for a big second drink?  Call me cynical, but now that Washington allows excise-tax-free tipping in cannabis stores (see below), I see tricks coming. Take the case of an owner who is a budtender. It wouldn’t surprise me if an owner-budtender generously reduced a taxed prices — with a hope for a return favor. This sale or next.  Not in a negotiation — just in a friendly gesture.  One good turn might bring about another.

When you tax a percentage of price, you run into trouble. Washington state authorities now don’t worry about this. Having dealt with folks, some of them my good friends, who have shifted $2 trillion of untaxed US profits offshore, I’m nervous. Prices depend on relationships.

The troublesome case is not where tipping is “required or a condition of sale, [or]. . . linked to the price of the product to avoid tax obligations.” [The quid pro quo case is illegal – as it should be. If you can catch it. Good luck with that.]

The troublesome case is where the lower price kind of just happens. And then tipping kind of just happens. Continue reading “A cynical look at WA’s tax policy on tips”

Quantifying the effects of tax enforcement?

In a paper contained in the London School of Economics document “After the Drug Wars,” three distinguished drug policy men raise this possibility that enforcement doesn’t raise the price of illegal drugs.

I wonder if raising the price of tax-evading black market drugs that compete against legalized drugs is a different case totally. I keep thinking that post-legalization, the black market is a function of two variables, (relative) value and enforcement. After repeal of Prohibition, Roosevelt was big on enforcement, and it reportedly helped.

After looking at four attempts to quantify the effects of tax enforcement, I argue that tax enforcement is quite different from enforcing prohibition. Continue reading “Quantifying the effects of tax enforcement?”

Tax targets

We have to tax something. Here are some things where taxation would do little harm:

Carbon
Tobacco
Alcohol
Cannabis
Legacies
Tax haven income stashed offshore (all of it now).  Much of this income is not really foreign anyway, and comes from U.S. intangibles.  A mandatory deemed repatriation — saying “tax is due now” — would bring in hundreds of billions.  Taxing it at some reduced rate, as many suggest as a compromised, is a pure give-away.  At worst, spread the deemed repatriation over a couple of years.

Here’s our actual list:

Income
Payrolls
Tobacco
Alcohol
Gambling — via state monopoly:  states are getting what they think the market will bear.
Legacies – inheritances – are taxed only marginally today, thanks to a $5 million threshold ($10 million for couples) and gaping loopholes.

The income tax has been regulatorily captured.  A keen observer speculates that Donald Trump won’t release his income tax returns because he hasn’t paid any.  Taxing payrolls is justified by history, and practicality, but it nudges in an unfortunate direction.

Basic marijuana questions for tax and drug policy

For marijuana, how might drug policy and tax policy work in tandem?

Should federal law be changed to let marijuana sellers deduct advertising and other expenses? (Only the cost of marijuana is deductible now, thanks to 280E.) What would be the revenue cost if 280E were repealed, or targeted at selling expenses alone? (For another day – should expenses of advertising alcohol, sugar, tobacco, etc., become similarly nondeductible?)

What excise tax bases might the federal government use? Price, weight, THC potency, canopy grow area, electricity use, or what? Should there be more than one federal tax as time goes on? What about fees?

How much revenue is available? Continue reading “Basic marijuana questions for tax and drug policy”

Government-Owned Marijuana Stores Pay No Income Tax

Ben Leff, the tax professor who wanted nonprofit marijuana businesses to be exempt from federal income tax, just concludes that state and municipal stores seem to solve the problem.  Not just the 280E problem — they pay no tax at all.

“The Case for Government-Owned Marijuana Stores”

Benjamin Moses Leff

Last spring (3/7/15), a little store called the Cannabis Corner opened up in the small town of North Bonneville, Washington, about an hour by car from Portland, Oregon. Continue reading “Government-Owned Marijuana Stores Pay No Income Tax”

Oregon’s crazy tax rates

Report from Oregon: “Once the state’s new rec rules are fully implemented, the 25% tax will be downgraded to a 17% sales tax.”

That’s crazy. It illustrates how early in the process of figuring out how to tax marijuana we are – or else how Legislatures don’t work. Businesses will struggle at first. Any tax relief should happen early, not late.

The RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, explains how taxes should go up over time. Why Oregon would ratchet them down is hard to figure.

“A brand-new legal marijuana market will not soon be stable. Fluctuating pretax prices would push after-tax prices around. Early on, the industry would likely suffer from lack of production capacity. Short supply would result in high early legal pretax prices.Adding high taxes to those high pretax prices would tend to drive consumers to bootleggers, whose main selling point would be lower prices. So revenue and drug policy would suffer from too ambitious a tax plan.

“Over time, legal businesses’ pretax costs should drop, for two reasons. Continue reading “Oregon’s crazy tax rates”

Bundling fixes

In Vermont, a legislative “committee passed an amendment 4-3 that prohibits dispensaries from selling non-marijuana products in a bundle with marijuana. Sen. Michael Sirotkin, D-Chittenden, presented the amendment, saying he did not want dispensaries to sell $50 t-shirts that come with a handful of free joints.” The story is here.

That’s an easy way of addressing bundling – selling taxed goods with untaxed goods for one price. This problem doesn’t show up when you tax by weight, or THC — just when you tax by price.  California’s AUMA proposes another useful solution:

“(b) Except as otherwise provided by regulation, the tax levied under this section shall apply to the full price, if non-itemized, of any transaction involving both marijuana or marijuana products and any other otherwise distinct and identifiable goods or services, and the price of any goods or services, if a reduction in the price of marijuana or marijuana products is contingent on purchase of those goods or services.”

 

WA marijuana tax cut proposal

[UPDATE 18 March 2018:  In hindsight, I would have beenless sympathetic to that proposed tax cut. Now, in WA, “the price of a [fully taxed] legal ounce of cannabis sells for less than a black-market ounce.”  Sometimes “Half of the black-market price.”  https://mjbizdaily.com/washington-state-cannabis-supply-hits-new-low-spurs-calls-change/.]

My friend Dale Gieringer sends this article (noticed by Brett Stone) about a proposal to cut Washington’s marijuana tax.  The rationale is the ongoing strength of the black market.

I don’t know the facts on the ground about the black market, but I might be for this kind tax cut – IF IT’S SUNSETTED – that is, if the tax rate went back up automatically after a set period. As the sunset ends, if the legislature thinks the rate is still too high AT THAT TIME, it can keep the rate low, by extending the lower rate.  (I was recently accused of being “anti-marijuana,” but I’m an analyst rather than an advocate.   I do see cannabis as a revenue source, and it turns out that I’m mostly looking to get more revenue rather than less, so I can see how someone would think I’m anti-.  So it’s comforting to see a tax cut I might support.)

The Economist just published this:

If, starved of sales, the black market shrinks beyond a point of no return, taxes could later go up, restoring the deterrent. There is precedent for this. When the prohibition of alcohol ended in 1933, Joseph Choate of America’s Federal Alcohol Control Administration recommended “keeping the tax burden on legal alcoholic beverages comparatively low in the earlier post-prohibition period in order to permit the legal industry to offer more severe competition to its illegal competitor.” After three years, he estimated, with the mob “driven from business, the tax burden could be gradually increased.” And so it was (see chart 3). Continue reading “WA marijuana tax cut proposal”

Why Oregon taxes marijuana by price

Anthony Johnson, the architect of the Oregon Initiative with the per-ounce tax, kindly agreed to let me quote him: “Oregon moving from a weight-based tax to a tax at the retail level was more about convenience for the industry and the state. Growers and retailers advocated for the switch and state regulators and policymakers were happy to oblige.”

Some background: I got into this when the Oregon Legislature asked me to testify last year on that issue. Here is my written testimony: https://newrevenue.org/wp-content/uploads/2015/02/oglesby-testimony-oregon-16-feb-2015.pdf. Here is the audio of my telephone testimony 16 February to the Oregon Joint Legislative Committee on Measure 91:  http://oregon.granicus.com/MediaPlayer.php?clip_id=8165  — 1:20:40 is where I start, and I finish by 1:38:00.  At about 1:36:51, Co-Chair Lininger says, “That was really a delightful phone call.”

Political opposition by growers to the hassle of paying the tax was one factor behind the retreat.

Another factor was the awkwardness of exempting medical marijuana from a production tax. It’s awkward for raw product to be designated irrevocably as medical or recreational, because the market may demand more or less of each category later on, when the consumer sale occurs. And irrevocable designation is not just a guess, it’s a bother.

Friends in Oregon reminded me of some other factors: Continue reading “Why Oregon taxes marijuana by price”

Colorado taxes by weight

My friends and Jon Caulkins and Beau Kilmer (and co-authors with me of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html) fail to mention that Colorado taxes marijuana by weight. This is not an error, just an omission.

They have this statement: “Oregon joins Colorado and Washington in assessing taxes as a percentage of value.” (Paywall.)

That’s true, but Colorado taxes by weight, too, as well as by percentage of value. That point is often overlooked, and it’s explained more legibly on pages 79 and 80 of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html, pasted crudely here:

Colorado side-stepped its constitutional authorization of a 15-percent “excise tax to be levied upon marijuana sold or otherwise transferred by a marijuana cultivation facility to a marijuana product manufacturing facility or to a retail marijuana store” (Constitution of the State of Colorado, Art. XVIII, section 16) and ended up taxing something it could measure, so it taxed bud at $0.62 per gram, trim at $0.10 per gram, and seedlings at $1.35 each. Continue reading “Colorado taxes by weight”