The Center for New Revenue

Sin may be in the eye of the beholder, but I generally favor sumptuary taxes on alcohol, tobacco, marijuana, gambling, what have you — call them sin taxes.  Still, I have to recognize that opponents have a point when they argue that government may need revenue so much that it promotes “sin.”  Here’s what’s happening with the North Carolina lottery in the Republican controlled N.C. House of Representatives:  “The House plan relies on turbocharging lottery sales by more than 20 percent through increased advertising statewide.”

States May Be Stuck with Second-Best Marijuana Taxes is an adaptation, published by State Tax Notes for U.S. readers, of ” The Ace in the Game,” which was aimed at non-U.S. readers:

It says (1) taxes are second-best to monopoly, and (2) the ideal tax, based on THC potency, is out of reach.

 

 

Governor Hickenlooper of Colorado says

“his office has been in contact with a professor from Stanford, who is experimenting with water that works as an atomic signature for marijuana, allowing law enforcement to tell if it’s legal or not.

“The goal, he said, is to make it possible that ‘if you pick up marijuana, you can tell if someone paid taxes or if it was contraband.’”

Any consumable marker to would have to be nontoxic, hard to counterfeit, inexpensive to apply, and easy to detect in the field.

This reminds me of the way we tax virtually the same substance if used in vehicles (diesel fuel) and exempt it if used for heating buildings (heating oil).  The exempt stuff is marked with a red dye.  Can marking work for marijuana concentrates?  And how about green plant material?

Jacob Sullum of Reason says black market prices should be higher than legal prices.  I disagree.

He notes that black market prices in Colorado are lower than legal prices:  “legal pot was selling for about 50 percent more than black-market pot.”

He then says, “That situation seemed to contradict basic economic principles. Because of the “risk premium” associated with prohibition, black-market prices should be higher than legal prices, not lower.”

No!  That analysis looks only at the supply side – what producers face.  On the demand side – what consumers face – why would anyone pay extra for black market product? Continue reading “Legal prices should and do exceed black market prices”

France now imposes a tax of 1.019 euros per liter of energizing drinks – those with over .22 grams of caffeine per liter.  That’s about 35 U.S. cents tax per can of 25 centiliters (wine commonly comes in 75 cl. containers; Red Bull in the USA is typically sold in cans of 8.4 ounces, or 24.8 cl.; that 25 cent figure assumes 1.4 euros to the U.S. dollar).

The official French government site actually uses the term “taxe Red Bull” and says the tax aims to reduce excessive consumption of this kind of drink.  Coffee and tea are not taxed.

This kind of cliff — where staying below a threshold makes a big tax difference — reflects the idea that products above the threshold are different in kind from those below.

Here is what passed:  Sec. 8a. TAXATION AND REGULATION OF MARIJUANA; REPORT

On or before January 15, 2015, the Secretary of Administration shall report to the General Assembly regarding the taxation and regulation of marijuana in

Vermont. The report shall analyze:

(1) the possible taxing systems for the sale of marijuana in Vermont, including sales and use taxes and excise taxes, and the potential revenue each may raise;

(2) any savings or costs to the State that would result from regulating marijuana; and

(3) the experiences of other states with regulating and taxing marijuana. Continue reading “Vermont Marijuana Study: Text”

Potency vs. Weight: Sugary Drinks

What measuring stick to tax with: weight or strength? The ideal for cannabis is potency, but as this blog often says, we can’t measure THC content accurately enough to tax – not yet, anyway.

A new study, mentioned in the NYT June 2, 2014, suggests that measuring calories of sugary drinks (as opposed to volume, the analog for liquids to weight for dry matter), is the best tax base: Continue reading “Potency vs. Weight: Sugary Drinks Tax”

Here is paper Ace in the Game Oglesby ISSDP version for the talk I’m giving to the International Society for the Study of Drug Policy in Rome.  And here are the slides, at least a rough, tentative version:  Rome Final

NC proposal:  5 cents a milliliter of juice, regardless of nicotine content;  WA: 8 cents a milligram of nicotine.  There are about 1,000 milligrams in a milliliter.

Here is source material:

North Carolina:

Tobacco Industry Proposes Tax on E-cigarettes, By Rose Hoban and Hyun Namkoong

The excise tax supported by a representative of R.J. Reynolds would place a 5 cent tax on the equivalent of a pack of cigarettes.

The scene was enough to make a reporter look twice. Even before the official start of the North Carolina General Assembly session on Wednesday, a representative from R.J. Reynolds Tobacco Company stood before a legislative committee and asked lawmakers to tax his products.

But the tax that tobacco interests were requesting from the Revenue Laws Study Commission was minuscule compared to North Carolina’s usual tobacco tax, which at 45 cents a pack is itself one of the lowest in the nation.

And the move left anti-smoking advocates scrambling Continue reading “Proposals to tax e-cigarette nicotine juice: NC (low) and WA (high)”

Question:  

Updating https://newrevenue.org/2014/05/12/can-the-bud-trim-line-hold/:  Let’s say there’s a huge tax on bud and a small tax on trim.  Would that give producers an incentive to cheat – to shift bud, at the margin, just a little, into the trim category and then use it to make concentrates?

Might not a tax-evader deliberately characterize bud as trim to boost the THC content – and thus value – of concentrates?  That evasion depends on the purchaser believing that he is getting a better, more valuable product — edible, vaporizer cartridge, or whatever.  And that belief would need to come from THC labeling (however inaccurate) or some other claim or experience or report. 

Industry expert’s response:

My first impression is, yes it could be more economical to move lesser buds over into the trim pile.  A lot of that depends on the market.  In some markets small buds are desired by the consumer, for less mold and easier utility.  Under that pressure, it might still be beneficial to sell smaller buds as is.  There is also a market for big boutique buds, the ones that look like the ‘bud porn’ you see in trade magazines.  Those larger buds will always go directly to sale as bud. Additionally, if there is some kind of hiccup in production, some plants could produce some seeds and those wouldn’t be viable for sale in the bud market. So there a number of pressures besides taxes that move the line between bud and trim. Continue reading “Expert: Bud-Trim Line”

From The Pan-American Post:

. . .  commercial growers will be subject to a “variable fee,” which would ultimately be used to vary the price of the drug in pharmacies. . . . [A]dditional taxes may be added later . . .

Ultimately, the lack of built-in tax on marijuana sales — at least initially — is one of the strengths of the law. This provides important flexibility, allowing officials to accurately set the price to keep the drug competitive with the black market without worrying about additional taxes making it prohibitibely expensive for users. It’s also worth noting that this gives the Uruguayan government an advantage over authorities in Washington and Colorado (where the drug’s price will be set by state and local taxes as well as supply and demand).

Fascinating Update at https://newrevenue.org/2014/09/22/rose-habib-on-the-bud-trim-line/ — sophisticated analysis from an industry expert, who knows far more than I.

Context:  Colorado is de facto imposing wholesale per-gram marijuana taxes:  62 cents for potent bud, or flowers, and 10 cents for less valuable trim, or leaves.  New Approach Oregon’s prominent 2014 initiative would tax bud at $1.23 a gram, trim at 35 cents.  Rhode Island Senate Bill 2379 would tax “dried flowers” at $1.76 per gram, and “all other parts” of the plant at 35 cents. Alaska’s predicted-to-pass 2014 initiative would tax at $1.76 per gram, too, but would allow a tax cut for parts of the plant that aren’t so valuable or so potent.

Problem:  “It would be impractical to try to establish legally enforceable standards of how well trimmed a bud can be before it is no longer legally a bud.”  That’s from After Legalization, by Jon Walker.  Phil Smith calls the book “in-depth, thoughtful, and insightful.” http://stopthedrugwar.org/chronicle/2014/apr/29/marijuana_past_and_future,

Update:  Here is a  40-second video of a mechanical separator of bud and trim — but we don’t see the results (url https://www.youtube.com/watch?v=DYDX_8JSygg).  Maybe that kind of thing device be calibrated with a certain size of openings and a certain duration of operation to yield bullet-proof, replicable results.  Maybe.

Revised link: Here is a long video of hand separation of bud and trim.  https://www.youtube.com/watch?v=GOtsu-BKuys. Or search youtube with trim marijuana hand.

Continue reading “Can the bud-trim line hold?”

Advocates of marijuana legalization say marijuana is safer than alcohol.  In that case, here’s an SAT-style analogy:  Marijuana: alcohol = monopoly: taxed commerce.   State monopoly would run afoul of federal law in the United States, but in other countries, it seems available.

Here are six reasons a monopoly is safer – more prudent – than taxed commerce:

The game-over first reason to pick marijuana monopoly over a private-enterprise model is that governments get only one chance to set up a monopoly. You can always switch from monopoly to a private model, but not the other way (private businesses would have a powerful and valid complaint).  Having a Plan B is safer than betting all on Plan A.

Second, a public seller can tweak prices more quickly than a Legislature can change tax rates, the better to battle bootleggers in the inevitable price war.

Third, a state monopoly limits the profit motive Continue reading “Safer”

Instead of the word “deferral” for the tax break U.S. companies get to invest offshore, we might use the word “deferment.”  Deferment is what I got from the military draft in the late 1960s, when I let someone else do what the Republic thought needed doing.  Now America needs money to operate the Republic, and our multinationals are happy to dodge responsibility by craftily and artificially shifting taxable income offshore, where tax on it is “deferred” until they bring it home.  The duty is dodged.  Maybe forever, if the multinationals can arrange for themselves another 2004-style Jobs Act Tax Holiday Caper.  When they dodge their duty, someone else has to step up.  That’s deferment.

In Spanish.  Original is here:  http://medios.presidencia.gub.uy/jm_portal/2014/noticias/NO_M871/reglamentacion-ley19172.pdf.   And a formatted version is at reglamentacion-ley19172.  Date of 2 mayo in Article 103 convinces me this is the document.

Suitable for searching if you don’t want to read carefully:

1 VISTO: Que con fecha Continue reading “Uruguay marihuana regs — text”

Punishment for drug crimes should not be based on the weight of the drugs; instead, punishment should be based on the profits that criminals get, says Mark Osler.  Kingpins should get greater sentences than mules.  The problem is that prosecutors can’t readily “prove the amount of profit made by an individual defendant.  It wouldn’t be as easy as snatching up mules and street dealers.  But then ‘easy’ and ‘justice’ rarely rest comfortably with each other.”

A criminal case takes days if not weeks of person-time to handle.  So long as a drug is illegal, some extra time to figure out the place of the accused in the supply chain would indeed be useful -– so as to punish kingpins more than mules.  Figuring out the amount of profit, though, would prove hard if not impossible.  Apple, GE, and Starbucks shift profits from the United States to tax havens with impunity –- and they have to keep books to report to shareholders.

But when a drug is legal and taxed, the tax system can’t afford weeks, days, or even hours examining Continue reading “Why tax is not like criminal law”

“It would be impractical to try to establish legally enforceable standards of how well trimmed a bud can be before it is no longer legally a bud.” That’s from After Legalization, by Jon Walker of Firedog Lake. Phil Smith calls the book “in-depth, thoughtful, and insightful.”

Here are the stakes: In states that draw a tax line around “buds” or “flowers,” the taxpayer wants to categorize plant matter as lightly taxed “trim” rather than heavily taxed bud. That lightly taxed trim can then go into concentrates, Continue reading “Bud-Trim Line”