Eakinomics: The Dope for Cannabis and Taxes
There is a rich history of taxation at the intersection of law and disorder. Most obvious is the Boston Tea Party, a protest against taxes in the Townshend Act (and more specifically, the exemption of the East India Company from those taxes). The first federal excise tax, a tax on whiskey, started the Whiskey Rebellion (my people in western Pennsylvania, God bless them). And Al Capone evaded the law until he was known to be convicted of income tax evasion.
That brings Eakinomics to the final two publications by AAF’s Gordon Gray: An Introduction to Federal Cannabis Taxation and an Overview of Federal Cannabis Taxation. Beginning with the latter, 18 states and the District of Colombia have “decriminalized” recreational cannabis use and started retail sales to adults. Since taxes are irresistible, they have also begun to tax products by retail price, weight, or, to some extent, potency. Hence, cannabis taxes can be thought of as another “sin tax”, similar to alcohol or tobacco. On average, these state taxes are 18.8 percent. But the following table (Table 4 of Gray’s paper) shows the bottom line effectively: “Compared to alcohol, cannabis is taxed much more heavily, but it is taxed more easily than cigarettes.”
All of this is interesting in itself. But it is even more fascinating in view of the federal primer, which indicates that the “making, distributing, and possessing cannabis remains a federal crime under the Controlled Substances Act. According to federal law, cannabis is a List 1 controlled substance and anyone involved in its distribution is a drug dealer among all others subject to severe criminal penalties. ”So at some level, these states are in their own cannabis rebellion involved.
It gets better. As Al Capone learned the hard way, federal income taxes must be reported and paid on income from illegal activities. In addition, there is now a separate income calculation for cannabis sellers in tax law. As Gray notes, “In a 1981 U.S. Tax Court opinion, the court ruled that a taxpayer who was ‘self-employed in the trade or business of selling amphetamines, cocaine and marijuana’ was entitled to travel, rental, Packaging costs, and other similar costs that can be deducted from his otherwise taxable income as a drug dealer. ”That was the economy, but Congress added Section 280E to the Tax Code in 1982, with the result that cannabis distributors are now deprived of credits and Can use prints. So no tax credits and no deductions for employee salaries, rent or ancillary costs.
There have been many proposals to reform the state taxation of cannabis. One would be to provide deductions and credits to cannabis sellers, which would mean a $ 5 billion tax cut for the industry. Another would be the complete removal of cannabis from the Controlled Substances Act, which would make Section 280E obsolete. Finally, there are also proposals to introduce a federal excise tax like the state-level taxes discussed above. Still, Gray concludes, “With no major federal cannabis policy and taxation in the near future, states and communities will continue to function as political laboratories on the cannabis front.”