[An updated version appears as part of http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1741735.]
While marijuana helps some people with illness, I am very wary of exemptions, lower rates, or special rules for marijuana when it’s said to be medicinal. No proscription, no prescription.
First, any special rule puts the government in charge of making decisions about individual people. The government can distinguish, however awkwardly, among substances, so as to tax wine with an alcohol content of 13.9 percent at a lower rate than wine with an alcohol content of 14.0 percent. But putting human beings into categories can be more difficult. To be sure, there are easy cases, like the extra Federal tax exemption for individuals 65 and over (you just produce that birth certificate or otherwise prove your birth date as Mr. Obama has done to the satisfaction of most). But even the extra tax exemption for blindness on the Form 1040 creates a regulatory tangle and even a few disputes. Deciding whether someone has some ailment as subjective as chronic pain is a task that I hate to see government taking on. Folks who are distrustful of government ought to be especially careful about this kind of official categorization of individuals.
Second, any special rule rewards hypocrisy with a special right. Folks who pretend to be sick get something that honest folks won’t allow themselves to get.
Third, providing even any perceived benefit, even a placebo, to folks who say they are sick encourages people to think of themselves as victims. (The argument back is that we all may have chronic pain in our souls: it’s the human condition.) Having people think of themselves as victims has a positive aspect: it encourages them to seek help (and it encourages others to try to get them help). But such thinking tends to weaken the thinker.
Fourth, any special rule adds complexity.
Finally, any special rule diminishes the tax base.
A new Rand corporation study, “Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets,” estimates revenue from the California proposals. http://www.rand.org/pubs/occasional_papers/2010/RAND_OP315.pdf
It’s quite elaborate. I’m working through it, but it seems to do a good job of spotting the issues.
A couple of quick reactions:
The uncertainty in Rand’s conclusions makes the case for having the State be the sole retailer (and maybe having the State own the whole supply chain). Rand finds it hard to estimate elasticities and can’t pin down bootleggers’ reactions or even current price. Setting a tax rate too firmly fixes a probably incorrect rate in place. So following the lottery model, where the State can adjust prices quickly, looks appealing.
Their analysis makes the case for measuring potency and taxing on the basis of it. First, they note the incentive, long noted on this blog, that a per-ounce tax gives to produce more intoxicating cannabis. But second, there’s more to it. Measuring potency officially by the State will give consumers certainty about what they are getting. Bootleggers can’t supply that certainty. Folks will pay a premium for it.
The imprecise statement that potency testing will cost $100 per test needs elaboration. The cost must include fixed and variable costs, and they need to be stated.
Still, this is the most thorough and serious look at revenue I’ve seen. And I’ve just started to study it.
The NYT of July 4 points out that we are subsidizing big oil, and undertaxing it. “As Oil Industry Fights a Tax, It Reaps Billions From Subsidies,” http://www.nytimes.com/2010/07/04/business/04bptax.html?ref=global-home. Transocean, the owner of the Deepwater Horizon that caused all the trouble, is one of what John Kerry called those Benedict Arnold corporations that escaped the USA to avoid tax.
That brings to mind a controversy in the 1980s about whether a pamphlet describing some tax break for the oil industry that was to be issued by the staff of the Joint Committee on Taxation would use the phrase “Drain America first.” Friends of the oil industry at the Member level didn’t like the phrase: I don’t think it got printed in the pamphlet.
A friend reminded me yesterday that “[t]he estate tax is seen as the most ‘unfair’ federal tax,” as shown in a 2009 Tax Foundation survey, http://www.taxfoundation.org/files/sr166.pdf. That happens even though only a tiny fraction of people will ever pay it.
As a vehement supporter of death taxes (even with the right wing’s label), I quickly blamed propaganda and said education is the answer. Let people know not just “you won’t pay it,” but also that it’s not a meaningful disincentive to economic activity.
But an article makes me wonder. It says that many people deny scientific consensuses despite exposure to scientists’ views: people base their views of reality on ideology, not science. If scientists want to educate the public, they should start by listening, Chris Mooney, Washington Post of June 27, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/06/25/AR2010062502158.html?hpid=opinionsbox1.
That propensity to disregard what so-called experts say makes it hard to think education will do the trick. And taxes aren’t science. When I got into the tax policy business, one of the first things I learned was, “It’s all theology.” You can’t convince people that a particular tax policy is right or wrong: individual values determine everyone’s views.
The article’s thinking might lead tax policy folks to ask citizens where they think revenues should come from. (Let folks think about the effects of payroll taxes over against those of death taxes.) Maybe that would work.
American Public Media has a budget simulation exercise online at http://marketplace.publicradio.org/features/budget_hero/. Its treatment of taxes is primitive; its come-on ignores taxes altogether: “If you ever wanted to control where your tax dollars go, here’s your chance to decide.”
Some go so far as to call for abolition of “differential excise taxes on tobacco, alcohol and entertainment. These kinds of taxes, often called sin taxes, are disrespectful of people’s freely made choices and represent an unwarranted interference with private decision making.” Roy Cordato, Sales taxes and free choices, (May 25, 2010), http://www.newsobserver.com/2010/05/25/v-print/498695/sales-taxes-and-free-choices.html. That’s wild. The full letter is pasted below.
A more mainstream conservative view that is skeptical of excise taxes on specific goods says a tax should be “[n]eutral in its impact on resource allocation decisions” but allows for non-neutrality where there are negative externalities or “spillover effect.” Joint Economic Committee Study by Richard K. Vedder and Lowell E. Gallaway, Some Underlying Principles of Tax Policy (September 1998), http://www.house.gov/jec/fiscal/tx-grwth/taxpol/taxpol.htm.
Point of View
|Sales taxes and free choices
BY ROY CORDATO
Continue reading Free choice to use tobacco and alcohol — Tax free!
1. Simplistically, either we adopt a marijuana tax (low hanging fruit) or we go broke because can’t muster the will to make hard choices. This is a test.
2. For years, I worked for Congress on trying to tax income from intangibles, which is not only hard to measure, it’s hard even to locate (companies like to say it’s in tax havens). Locating marijuana will be simple unless the tax is so high as to encourage bootlegging. But once you find it, you can measure it. Or tax it based on potency.