The Center for New Revenue

Continuing to think that the best way to legalize marijuana is via state monopoly, I’m thinking that AG Holder’s eight criteria might open the door.

Only this criterion — “growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands” — might create some problem for state stores by far-fetched analogy.

There are at least three problems for state monopoly under this analysis: Continue reading “State Marijuana Monopoly under AG Holder’s Eight Criteria”

The Apple Corporation’s ad campaign is happy to associate itself with our biggest and richest state.  But when it comes to paying taxes here –or anywhere, watch out.  “Apple has been a pioneer in tactics to avoid paying taxes to Uncle Sam,” says the N.Y. Times.  This has been going on for years.  And Apple dodges taxes in the U.K., too.  And en France.   Intangible-rich companies like Apple shift income to tax havens, and the big countries haven’t mustered the will to stop them.

Here’s a summary of the debate about marijuana legalization, using the form of a 1952 speech on alcohol by Mississippi politician Noah Sweat, reprinted at the end and here, read by John Grisham here.

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If By Cannabis

My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about cannabis. All right, here is how I feel about cannabis:

If when you say cannabis you mean the Devil’s weed, the gateway to the nightmare of hard-drug addiction, the tempter of teenagers that terrifies parents, the cause of the feeling that flesh is falling off bones, the impairer of judgment and driving (causing fatal crashes), the shrinker of brains, the origin of pointless mental excursions to the artificial nowhere of a fool’s paradise, the psychologically addictive near-narcotic that stupefies the user and saps motivation, perseverance, and determination; the converter of our precious and capable young people into idle, self-indulgent, unhelpful stoners; if you mean the powerful not-your-father’s marijuana, the slow train to nowhere, the greed-driven motivation for a New Joe Camel and the big business of addiction, the carrier of molds and carcinogens into the lungs, the risky complement to alcohol, the manifestation of a “damaging level of permissiveness” in America, the threat to American economic competitiveness, the product whose illegality would push Mexican cartels to produce deadly heroin, the psychoactive trickster that creates irresistible cravings for the unhealthiest food, the undesirable attraction for rowdy tourists and penniless drifters,the aptly named “Skunk” whose smoke irritates neighbors and passersby, the precursor to legalized cocaine, the finicky and fragile hybrid whose secret indoor cultivation guzzles energy and pollutes our imperiled planet, the wrong choice between Drugs or Jesus; if by cannabis you mean the cause of cannabinoid hyperemesis, the poison scourge that brings on panic attacks and psychotic symptoms and sends thousands to emergency rooms each year, if you mean the placebo or mere pain-reliever that diverts the suffering sick from real cure, then certainly I am against it.

But, if when you say cannabis you mean the symbol of hostility against every form of tyranny over the mind of man, the miracle drug that treats dozens of diseases, the balm to humanity for millennia, the natural healer that tames the nausea of the cancer-stricken chemotherapy patient and restores appetite to the withering invalid, the safer-than-physically-addictive-opiates reliever of intractable pain, the botanical genus containing cancer-killing compounds and hundreds of chemical components we have barely begun to study and exploit, the “’herb bearing seed’ given to humanity in Genesis 1:29”; if you mean the good habit, the mild mood-lifter, the organic expander of consciousness, the instigator of new ideas, the promoter of “serenity and insight, sensitivity and fellowship“;  if you mean the spur to laughter, the soft, safer substitute for dangerous beverage alcohol; the aromatic plant whose legal commerce can create jobs and undermine murderous mobsters; if you mean the product whose legalization will uncrowd our prisons and enfeeble The New Jim Crow, if you mean the tested-for-safety commodity whose sale could pour into our treasuries untold billions of dollars, which could be used to ease our crushing debt, to cut counterproductive taxes, or as Mississippi Legislator Noah Sweat said in a speech about whiskey in 1952, “to provide tender care for our little handicapped children, our disabled, our pitiful aged and infirm; to build highways and hospitals and schools,” then certainly I am for it.

This is my stand.  I will not retreat from it.  I will not compromise.
Continue reading “Cannabis Pros and Cons, “If By Whiskey” Style”

Will government in full-legalization states always need to keep trying to distinguish between patients and everyone else? Maybe, with full legalization, (1) economies of scale will kick in and (2) the prohibition premium will fade so much that non-medical users will pay an after-tax price lower than patients have ever paid (or maybe even hoped for). Even if the two groups (healthy folks and patients) are “served by the same system,” some costs of deciding who is a patient and who is not will continue — like doctor’s fees. Another category of costs is non-financial, like the disrespect for law that comes from healthy people beating the system and evading tax by pretending to be sick. But let me be clear: I am convinced that marijuana has real medical uses. To the extent that the public has confidence that medical recommendations do in fact separate sick people from healthy people, I backtrack.

Discussion is proceeding at the Samefacts blog.

Folks in favor of the legalizing marijuana could, until today, point to a plausible tax-free scenario:  A state could just repeal its Prohibition laws, as New York did for alcohol in the early 1920s.  In that case, the state would collect no tax, but would leave enforcement of non-tax laws to the federal government.  A variation on that scenario would have happened if the federal government had shut down the regulatory schemes in Washington or Colorado, leaving possession legal.

But Eric Holder’s announcement, that the Administration will let state legality operate, takes away the possibility of tax-free marijuana, as a practical matter.  Marijuana, where legal, is no more likely to be tax-free than wine, taxed in every state, even California.

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”