Taxes

Whatever Is Not Permitted Will Nevertheless Be Taxed

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Taking a cue from the enlightened policies of states such as Tennessee and Alabama, New York Gov. Eliot Spitzer wants to levy a "tax" on illegal drugs: $3.50 per gram for marijuana and $200 per gram for other drugs. Almost no one pays such taxes in advance, and doing so does not make possession of the drugs legal. Hence these revenue measures are merely an excuse for imposing an extra punishment (back taxes, interest, and penalties for noncompliance) on people caught with illegal substances:

Officials say the taxes give states a new and easier way to seize drug money, handing law enforcement a tool to hobble the drug trade and replenishing state coffers along the way. Mr. Spitzer's aides say the tax could bring in $17 million a year.

The main legal arguments against drug taxes are that they compel self-incrimination, since you can pay the tax only by admitting to a crime, and that they punish people twice for the same conduct, violating the constitutional prohibition against double jeopardy and the guarantee of due process (since the back taxes and penalties are imposed presumptively). Two decades of litigation over these issues suggest that a tax can withstand constitutional challenges if people can pay it anonymously, receiving stickers they can affix to drug packages as evidence of compliance. (In Alabama the stickers read, "Say No to Drugs.") That way payment of the tax does not lead to arrest, and if the taxpayer is later arrested he won't be charged for back taxes, although the government probably will find another, slightly more cumbersome way to take his assets.

A North Carolina case mentioned by The New York Times raises a distinct issue: How should drugs be weighed for tax purposes? The defendant, William Hoak, was arrested for selling pot-spiked Rice Krispie Treats, and he maintains that he should not be taxed for the cereal and marshmallow (an argument reminscent of the debate during the 1990s about federal sentencing rules that treated a sugar cube containing 100 micrograms of LSD as if it were pure acid).

More reason on drug taxes here, here, here, and here. A 2007 Reason Foundation study of the subject here.

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  1. I wonder, do you have to show an ID to get the stamps and could you buy a roll of stamps to have on hand, just in case?

  2. What happens if you possess the stamps but no dope? Does it act as some sort of admission?

  3. If a designer drug suddenly rockets in popularity, would you have to pay capital gains taxes?
    Because I’d be against that.

  4. Surely you affix the stamp to the container the drugs are in, and not to the actual drugs, so I guess you just have to keep reusing the same baggie.

  5. Nobody tell billy beck about those guys paying taxes on their drugs.

  6. As I understand it there is a subculture of philately that collects tax stamps like these, presumably without using them as intended.

  7. What if you had a baggie that you used to keep all the stems and seeds for later sieving for minute quantities, you know during dry times, would you have to use a stamp for that too?

  8. “It’s really about cutting the drug dealers off at the knees,” said Ms. Smith of the tax administrators group. “It kind of goes back to the Al Capone model.”

    Like that totally made prohibition work.

  9. Any reports of teens buying the tax stamps as decoration? When I was a kid, I’m sure I would have wanted one on my board.

  10. I’m all for a tax on those goddamn “YOU MAY HAVE WON A FREE IPOD!!!!!!!11!!1!!!!” ads. Fuck that, Reason. Come on.

  11. It just baffles me how this could be a constitutional law. Why not tax everything illegal ?

    Tax for illegal dumping of bodies: $200

    Stamps to be affixed as you like.

  12. What happens if you possess the stamps but no dope? Does it act as some sort of admission?

    No. Not at all. I’ve no idea why you think that.

  13. I own a number of these tax stamps (for collecting only) from various states. Some of them are quite amusing (The texas stamp with death pictured on it is a classic.)

    No taxation without legalization!

  14. Even in unenlightened TN our state supreme court ruled this tax to be unconstitutional. I believe the NORML website still lists TN as a cannabis taxing state.

  15. I agree that the government is missing out on a great revenue stream.

    Is there any reliable estimate as to how much tax revenue the drug war causes, say, the state of New York to forgo on an annual basis? …not in terms of the costs of police and prisons per se, but just how much cold cash are they letting go?

  16. Is today the drug warrior insanity recognition day or something?
    We have today (so far) –

    Whatever Is Not Permitted Will Nevertheless Be Taxed
    Insanitized
    Georgia Sheriff Pattons Up for the War on Drugs
    Kill ‘Em All; Let God Sort ‘Em Out (yeah, 10:58 pm yesterday counts as today for me)

    I quit almost all proscribed substances years ago and I’m starting to get paranoid. Damn, I wish these puritans would get laid or something.

    That this puritanical prohibiting, persecuting, and prosecuting, people’s private pleasures* is such an important thing to them borders on obsessive/compulsive disorder. Why not just raise the penalties for possesion? Oh yeah, prosecutorial discretion so Johnny Countryclub doesn’t get hammered as hard as the peasants underclass minorities undesirables criminal element.

    I’m perfectly proud of posting “puritanical prohibiting, persecuting, and prosecuting, people’s private pleasures”.

  17. Hey Reason! Animated ads are annoying enough, but audio ads are unacceptable! Are you trying to drive traffic AWAY?

  18. So it seems like someone is getting worried about the anti-prohibitionist argument that governments are missing out on revenue by keeping the drug trade underground. This way a prohibitionist can counter that argument by saying “Hey, no way, they still are supposed to pay taxes.” I wonder what percentage of drug trafficking is actually being successfully taxed in those states currently trying it?..

  19. What about the Murder Tax? “Hey you killed that guy without paying the $200 Murder Tax. Now you’re REALLY in trouble.”

  20. Holy Crap! The Texas pot stamp from Pete’s link says $3500 for a kilo! You’d better have some killer weed or you ain’t gonna make no money!

  21. Got the down to seeds and stems again blues.

  22. The Texas tax stamp has drugs on the top and the two truths of life on the right and left side, death and taxes. Don’t death and taxes apply equally to everyone?

  23. Doesn’t taxing drugs send the wrong message to children, that as long as you pay the government the activity is allowed? That seems to be the argument for Narcan and Gardisil. Not sure I buy it, but I did say “children.”

  24. And of course, nevermind that beeping sensor implanted in the stamp. That’s purely for informational purposes.

  25. All income, from whatever source derived, is taxable for income tax purposes already.

  26. Perpetuating the scourge of the prohibition is not something to be proud of, it doesn’t remove from society the harm the prohibition is causing and certainly does not endear Governor Spitzer’s political life with anything remotely innovative.

    To be sure, tax marijuana in the same way as alcohol and tobacco but don’t stop at that point, go on to address all the problems non-marijuana users face as a result of the prohibition. Problems such as the higher taxes we pay due to the 800,000+ marijuana-related arrests each year, and the crime brought into our communities by the illicit marijuana trade and the $100 billion drain on our economy created by handing all regulation, control and profits of the marijuana industry to criminal and terrorist organizations.

    The advantages of indefinitely enforcing a prohibition against a drug incapable of causing a single fatality do not outweigh the resulting costs imposed on society’s non-marijuana users.

  27. “The advantages of indefinitely enforcing a prohibition against a drug incapable of causing a single fatality do not outweigh the resulting costs imposed on society’s non-marijuana users.”

    Because the justice system is supposed to protect society from murderers, rapists, robbers, extortionists, con artists and other criminals.

  28. so…. if these substances are illegal, wouldn’t that make these levies ‘fines’ rather than ‘taxes’? my head hurts.. and i dont even do illegal drugs.. what an immoral, falsehood-ridden, counterproductive mess of a system.

  29. i’m preaching to the choir, i guess. or rather, the whole choir is simultaneously preaching in a mostly empty church.

  30. I’m in favor of abolishing all sales tax. Sales tax is used by government agencies to force anyone who trades anything with anyone to become an unpaid (spelled s-l-a-v-e) tax collector and/or accountant for the government.

    You might be tempted to say that income tax holds the same obligation. But income tax is a matter between the income earner and the government. You can lie all you want about your withholding allowances to your employer, but unlike sales tax, your employer is not required to make up the difference.

    The drug dealer who doesn’t collect sales tax is no better off than the collector who sells “Hot Wheels” on Ebay without collecting sales tax either.

    With enough revenue at stake, there will be a knock on the door, either way.

  31. Well, at least they’re doing everything they can to ensure high potency.

  32. If they just want to raise money, why not an obesity tax? Weigh in once a year at a state facility, get taxed $2.50 for every pound over weight your are for your height/age. Just like high school wrestling.

  33. Does anyone know of any countries that really are free? I mean Netherlands sounds very liberal in their own way but they’re socialists and part of the EU, right, so…

    What about some of those city-states that aren’t EU participants? I’m just trying to think of where to move to once the whole world gets NFL Sunday Ticket.

  34. this sort of counter-intuitive, counter-productive measure in par for the course. Prime example: Maryland increased the tax on cigarettes by $1.00 a pack as of January 1, so as to help make up the budget shortage. They are also outlawing smoking in more places every day.

    So here’s the plan: make it less likely that people will smoke, and then rely on smokers to pay for socialist programs.

    Brilliant. Maybe next they’ll start taxing bad driving… oh, wait…

  35. Once again I propose the “No Profit from Sin Act of 2008.” This would forbid the government from profiting on crime and products it deems harmful.

  36. “””The drug dealer who doesn’t collect sales tax is no better off than the collector who sells “Hot Wheels” on Ebay without collecting sales tax either.”””

    Is it really? One is illegal and one is not. Is it not wrong to profit from illegal acts? That’s someing that would send you and I to jail. Why should the government get a free pass?

  37. TrickyVic:

    Considering that the government gets a free pass on theft (emminent domain), extortion (taxes), kidnapping (arresting and holding suspected criminals), and murder (my god… the choices I could make for this one…), why shouldn’t they get a free pass on profiting off illegal acts? It does seem to be SOP.

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