Whatever Is Not Permitted Will Nevertheless Be Taxed
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.