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Huffington Post blog entry they just posted for me here: http://www.huffingtonpost.com/pat-oglesby/marijuana-advertising-the_b_3810341.html

How Denver City Council voted 13-0 to ban outdoor marijuana advertising:  http://bigstory.ap.org/article/medical-marijuana-ads-under-attack-denver

Here’s the text of the HuffPo piece:

Marijuana Advertising: The Federal Tax Stalemate

“Marijuana Industry Eager to Pay Taxes — and Cash in on Deductions” says a recent McClatchy headline. There’s a conundrum: The state-legal marijuana industry (1) understands that a new federal excise tax would give it legitimacy, but (2) seeks repeal of the discriminatory Reagan-era statute saying that taxpayers “trafficking” in “narcotics” cannot deduct ordinary business expenses on their Federal income tax returns.

But that current no-tax-deduction rule makes marijuana advertising nondeductible – and that probably makes sense. For most proponents of marijuana legalization, advertising is a frill, not an essential. But for opponents of legalization, marijuana advertising is anathema. Continue reading “Marijuana Advertising: The Federal Tax Stalemate”

Excerpts from Prohibitionist Rockefeller’s Foreword to the book Toward Liquor Control by Fosdick and Scott that proposed state liquor sales:

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In 2013, living in a liquor monopoly state and having lived elsewhere half my life before age 40, I can’t find a more appealing and unifying issue than liquor control.  Washington State abandoned it after a huge push by Costco, so I’m figuring some economic extremists will take a run at it here in North Carolina.  With all the disharmony here, I’m looking for an issue where I can agree with Brother Rockefeller’s fellow Baptist believers, and liquor control looks like a start.

The most sensible and cautious approach to marijuana legalization, it seems to me, is state monopoly.  Monopoly short-circuits the great motivating force of capitalism, the profit motive, and can operate without advertising.  And monopoly allows for instantaneous price adjustments to combat bootlegging.

But in the USA, states are scared that the Federal Government would shut down a marijuana monopoly, for reasons that Rob Mikos of Vanderbilt articulates.  I wonder if the Federal Government might not turn a blind eye to a scheme that’s demonstrably more cautious than the private enterprise ganjapreneur models that are taking hold, but most folks think Mikos is right, and that the safe approach to state legalization is private .

So the usual advantage of our Federalist system, where the states can be laboratories of experimentation, does not come into play.  The first marijuana monopoly is happening in an entire country, Uruguay.  It’s not strange that the first country to try it is a small one, because the chances of  the first experiment succeeding are slim.   A small country should be more nimble than a big one:  A battleship is harder to turn around than a PT boat.

“While prostitution is legal in Switzerland, sex workers have to pay a tax of five Swiss francs (£3.50) each night that they work.” – Report from the UK Telegraph.

That’s a tax base that’s easy to measure:  no tracing payment, no counting customers.  In exchange for about $5, the prostitutes get a measure of safety.

A lengthy proposal from the Comptroller of New York City to tax marijuana proposes a 20 percent marijuana excise.  The proposal assumes “that, as a matter of public policy, a goal of legalization would not be to lower the retail price.”  That language could be read as being indifferent to price (legalization has several goals, but lowering the price is not one of them; maybe reducing alcohol abuse is not a stated goal either).  That reading falls short of the  cautious approach of saying that a goal would be to maintain at least the current retail price, which would be clear if the proposal had said, ” a goal of legalization would be not to lower the retail price.”  But it’s a step Continue reading “NYC Comptroller Proposes Marijuana Tax”

The Greek left (exemplified by the tax collectors’ union) and some folks in the American right are trying the same approach.   When Greek tax collectors went on strike, I worried for their country.  Now, in America, House Republicans propose to cut the IRS budget by $3 billion, that is, 25 percent.  That’s starving the beast, all right – working for the collapse of the government.

Rob Christensen’s column now has corrected  sub silentio the attribution of “riverboat gamble” to Bob Dole that I complained about here.  So the online version now gets the attribution right:

Trickle-down economics. Yes, the same warmed-over philosophy that the elder George Bush once called “voodoo economics” and Howard Baker called “a riverboat gamble.”

Waiting to see if the print version (to which I still subscribe) ‘fesses up.   UPDATE:  Corrected on page A2, August 8.

An old friend who stayed in tax policy work as I went and came says a place to start studying the carbon tax is THE DESIGN OF A CARBON TAX, by Gilbert Metcalf and David Weisbach.

The authors “recommend full or partial delegation of rate setting authority to an agency to ensure that rates reflect new information about the costs of carbon emissions and of abatement.”  That approach is in line with my view that we don’t yet know enough about marijuana markets to set tax rates by legislation.  Taxing either substance will be a trial-and-error process.

“How much revenue could the cannabis tax generate, under different scenarios?”  —  BOTEC Analysis Corp. I-502 Project #430-8b June 28, 2013 Final

Despite the June date, this document has not been widely distributed.  It is stored permanently here:  8b_Tax_revenue_under_different_scenarios- Final;   Continue reading “Washington Marijuana Revenue: BOTEC analysis goes public”

Yes, if states don’t stop the black market, it will flourish and keep tax receipts down.   Here’s another story on the same issue.

A friend points out the more general problem:  “The problem is akin to arguing that cash only businesses will drive out taxpaying businesses. They are a problem at the margins. ”  And with restaurants, for instance, even those that pay tax may not pay all the tax they owe.

But tracking down bootleggers should be worth the effort.  Enough enforcement will take away their economies of scale — which legal operations can obtain, if the federal government, too, goes after the illegal sector first.

The marijuana states don’t yet have analogs to the statutes barring possession of untaxed alcohol, like Missouri’s.  But medical marijuana complicates the picture, because it is (typically) untaxed, but lawfully possessed.

As a tax man, I tend to react to proposals to prohibit something or other by saying . . . Slow Down.  Mentholated cigarettes are reportedly worse than the others, so the FDA is thinking about banning them.

Instead of the all or nothing approach that the FDA is authorized to take, how about the measured approach of taxation?  Make mentholated cigarettes cost a little more – just not enough to make bootlegging a big problem.  But a tax change would require Congress to act, and Jimmy Carter says (albeit in a different context) that the United States has “no functioning democracy.”  Anyway, people hate taxes these days.  So we’re stuck with all or nothing.  The only middle ground the FDA can stake out is to warn people that menthol is bad.  Taxes would be more effective at tipping the scales a little bit.

Our local paper’s political columnist Rob Christensen writes this:  “Trickle-down economics.  Yes, the same warmed-over philosophy that the elder George Bush once called ‘voodoo economics’ and Sen. Bob Dole called ‘a riverboat gamble.’”

But Howard Baker, not Bob Dole, called it a riverboat gamble.  Sources are here and here.  Continue reading “Riverboat Gamble: Correcting the News and Observer”

If a jurisdiction wants to collect tax, it’s a good idea to tax something that is not easy to move.  Boulder, Colorado, is taking what seems to me a nonproductive path for revenue with a 5 percent excise tax on producers.

I’m thinking that a small local tax on purchasers, a retail sales tax, might not send purchasers out of the jurisdiction.  Each purchaser would make an independent decision about the burdens in time and money and the benefits of buying elsewhere.  Meanwhile, a small local excise tax on producers Continue reading “Designing Local Marijuana Taxes”

A long and useful discussion on enforcement of marijuana taxes led me to post here some information from the most authoritative source on immediate post-Prohibition enforcement I have been able to find, Tun Yuan Hu, The Liquor Tax in the United States, 1791-1947: A History of the Internal Revenue Taxes Imposed on Distilled Spirits by the Federal Government (New York: Columbia University, Graduate School of Business 1950).  I’d be glad to learn of other sources.

In 1934, the Director of the Federal Alcohol Control Administration, Joseph H. Choate, Jr., said that “bootleggers are now turning out from their stills alone, not counting smuggling and alcohol divertings, a quantity of spirits which cannot be much less, and may be more than we drank before prohibition — that the government is losing more taxes than it gets, Continue reading “Policing the Illicit Cannabis Market After Legalization”

The NY Times has been covering the North Carolina Legislature, especially tax activity.  Back in December, I wrote that Republicans would seriously propose imposing taxes on all services (even those of doctors and . . . lawyers) and predicted it would be a nonstarter.  Well, the idea went forward, and its main proponent, Bob Rucho, resigned as Chair of the N.C. Senate Finance Committee when it went up in flames.

Having worked on the Tax Reform Act of 1986 for Congress on the Joint Tax staff, I admire base-broadening, Continue reading “North Carolina tax reform in the news”

An article behind the pay wall of Tax Notes this month explains how a little noticed technical provision in 1997, Code section 1297(d), allowed U.S. multinationals to keep over a Trillion Dollars (say $1,700,000,000,000) overseas untaxed.  It’s “Can a Piece of Paper Earn Billions?” by Charles I. Kingson.  The answer is yes.

There are several ways to stop these shenanigans, but Kingson (whose Columbia Law Review article, “The Coherence of International Taxation,” was handed to me on my first day on the job at Joint Tax in 1982)  points out that one simple way would be to repeal the 1997 change and thus reapply the Passive Foreign Investment Company rules to U.S. shareholders of Controlled Foreign Corporations.  Reinstating those rules would create a  fix that would apply only to foreign subsidiaries that are mainly passive.   Then those U.S. shareholders would have to pay an interest charge to make up for the deferral of tax.  Close enough.

$5 per package of rolling papers.  That’s the idea in a Maine bill.

With papers selling for $2 or $3 now, the responses are easy to predict:

— Smokers will use pipes.

— Consumers will buy papers in bulk out of state and share them with friends.

— Suppliers will sell enormous “packages” to dilute the burden of the tax.

Here is the entire bill:

SECTION 1. Chapter 64H of the General Laws, as appearing in the 2006 Official Edition, is hereby amended by inserting the following section.

Section 2B. In addition to the foregoing tax there is hereby established an additional tax of $5 on the sale of tobacco rolling papers per package.

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That paper tax (thanks to Allen St. Pierre for telling me about it) is still a better idea than this one.  And at some low level, a paper tax might make sense as part of a network of taxes.  Maybe.  But not at $5 a pack.  And not without taxing pipes.  The tax rate would have to be low enough so that buying papers in New Hampshire is not worth the trouble.  Such a low rate would probably mean the tax is not worth the effort.