Taxing Marijuana-How the The Tax, Regulate and Control Cannabis Act of 2010 Works

July 30, 2009 – California voters may soon get a chance to weigh in on whether marijuana should be legalized and taxed by the state. If enacted, this may help the state’s budget by providing revenue from a brand new source, while also freeing up money that previously went to enforcement efforts against marijuana growing. Of course, marijuana would still be illegal under federal law, but this may be a turning point in the legalization movement — the point where politicians desperate for tax revenues see dollar signs instead of prison bars when looking at the cannabis plant.

And make no mistake — this is not medical marijuana we are talking about. From the wire service report:

A proposed ballot measure filed with the California attorney general’s office would allow adults 21 and over to possess up to an ounce of pot. Homeowners could grow marijuana for personal use on garden plots up to 25 square feet.

Now, 25 square feet sounds like a lot, but it’s really only a plot five feet by five feet. Assumably, this was written into the ballot measure so marijuana (at least initially) wouldn’t be sown by agribusinesses in 1,000-acre fields. But even with the land-use restriction, the initiative is remarkable for the lack of other restrictions. No mention is made of “medical” or “medicine” or any of that — just “adults.”

There are even two ballot measures to choose from. The second one is even less restrictive:

The Tax, Regulate and Control Cannabis Act of 2010 would set no specific limits on the amount of pot adults could possess or grow for personal use. The measure would repeal all local and state marijuana laws and clear the criminal record of anyone convicted of a pot-related offense.

Bet that would save a few dollars on prisons. And even if these ballot measures fail, state legislators are introducing bills to do exactly the same thing. So, while it should not in any way be seen as inevitable, it now appears possible that California may soon legalize and tax marijuana, used for recreational purposes.

While the concept of taxing marijuana is a new one for most people to consider, it actually has a long history. The very first federal law dealing with (pun intended) marijuana was the Marihuana Tax Act of 1937. Earlier laws outlawing “narcotics” had left out marijuana (or, in the spelling more common at the time, “marihuana”), so this was a more specific law dealing only with cannabis (and hemp). It ostensibly levied a tax on marijuana, which was widely used in medical products of the day. The tax was pretty low (the base rate for a doctor was one dollar for a tax stamp, per year), but the penalties for not paying the tax were the real purpose of the law. The law did not make marijuana illegal, so what the feds would clap you in prison for was not ponying up the tax. This had to be softened during World War II, when hemp was necessary for military supplies (hemp ropes, before nylon became widespread) and the planting of hemp was actually encouraged by the federal government (as in the “Hemp for Victory” movie put out by the feds in 1942).

Later, in the 1950s, marijuana was flat-out made illegal at the federal level. And then, at the beginning of the 1970s, the Controlled Substances Act codified all illegal drugs, and superceded the 1937 Marihuana Tax Act.

But taxing illegal drugs, including marijuana, didn’t end there. The next iteration of taxing marijuana came as a result of individual states being annoyed at the federal government. I believe the first of these was Arizona, which (in the late 1970s and early 1980s) had to watch as the feds made a lot of money off the drug traffickers moving through their (border) state. In the 1980s, the big weapon used in the Drug War was property confiscation. So the federal Drug Enforcement Agency (DEA) would catch a semi truck full of bales of weed on an Arizona highway, and they would impound the truck. Later, they’d sell the truck in a government auction, and the DEA got to keep the money. Arizona was annoyed at being cut out of the profits, so they instituted a state tax on marijuana and other illegal drugs. This way, when the semi was auctioned, they could claim “unpaid taxes” on the cargo, and get their cut of the money raised. Many other states followed suit, and passed their own drug taxes for the same purpose — forcing the feds to share the spoils. They all sold (and some still sell) drug tax stamps for this purpose (Nebraska’s stamp unquestionably has the most creative design).

So, once again, the purpose of the tax was disingenuous. The states had no interest in making drugs legal, they just wanted a cut from any busts the feds made in their state. But now, for the first time, California seems to be seriously considering both legalization and taxation simultaneously — in other words, they are interested in the tax revenues themselves, rather than a back-door method of gaining windfall taxes from federal busts.

But I would caution the state lawmakers — and the people advocating for the new laws — to be conservative in estimating the revenue gained from these taxes. This is a by-product of the 100-year history of the Drug War itself. When you read in a newspaper that “$6 million worth of drugs captured” this dollar amount is often vastly overstated. And, even taking such estimates seriously, there’s a factor that most people don’t even take into consideration, which shouldn’t be ignored.

Say you want to estimate how much money California would make off a new marijuana tax. You come up with an estimate of how much pot is sold in the state (let’s call it $100 million, just for argument’s sake — since I have no idea what the actual figure is). You then estimate how much the market will grow, due to it now being legal. But then you’ve got to subtract anyone who grows their own at home, since they won’t be selling it to anyone (the tax is usually levied on point of sale, but I guess if it was a production tax they’d theoretically tax peoples’ back gardens as well). Finally, you come up with a figure.

But the big factor most people will miss is that the price of something which was previously illegal will go down if it is made legal. The price of moonshine during Prohibition was about ten times what hard alcohol sold for afterwards. Meaning, overnight, that “$100 million” market becomes “$10 million.” When something is illegal, most of the price is for the risk involved in producing it and getting it to the customer. Remove the risk, the price always drops. Always. Especially if a law passes without a “25 square foot” restriction, because then farmers out in California’s Central Valley will start growing massive amounts of marijuana (and as every economist knows, when the supply goes up, the price goes down).

So California should be careful when estimating what effect a (legal) marijuana tax would have on the state’s coffers. An easy way to avoid some of this problem would be to design the tax on “weight” rather than as a sales tax (percent of purchase price, in other words). Then the projections for anticipated revenue might be a little easier to make, because the price per ounce to the customer wouldn’t really matter, as the state would be guaranteed a certain dollar amount no matter how low it went.

A recent poll showed that 56% of California voters already approve of the concept of legalizing and taxing marijuana for personal, recreational use. Meaning that a ballot initiative has a fairly good chance of passing. I would just caution everyone to be realistic when making estimates as to how much tax revenue would be raised by doing so. California has such massive budget problems right now that a marijuana tax certainly couldn’t hurt the state’s cash flow. And, with the voters apparently ready to approve such a scheme, it looks entirely possible that it could happen. But overestimating the revenues expected could actually undermine the case for doing so. The advocates for legalization and taxation should be careful when drawing up their estimates, and keep their promises of tax revenue realistic, to better convince voters of the practicality of the idea. By Chris Weigant.

 

UN official urges greater investment in drug control and treatment to cut scourge

24 June 2009 – Amid an increasingly brutal struggle for a bigger slice of the $50 billion global cocaine market between Central American drug cartels, the head of the United Nations Office on Drugs and Crime (UNODC) has warned that legalizing narcotics would be an “historic mistake,” in a call for a global boost in drug treatment and crime control.
UNODC Executive Director, Antonio Maria Costa, acknowledged that laws controlling narcotics have created a huge black market for illicit drugs that thrives on violence and corruption.

However, “a free market for drugs would unleash a drug epidemic,” said Mr. Costa, as UNODC launched its 2009 World Drug Report today in Washington, DC.

“Proponents of legalization can’t have it both ways,” he said. “Legalization is not a magic wand that would suppress both mafias and drug abuse.”

Mr. Costa stressed that attempts to remove drug-related crime by decriminalizing illicit drugs – as some have suggested – would be an “historic mistake” because of the danger narcotics pose to health.

“Societies should not have to choose between protecting public health or public security. They can, and should, do both,” he said in a call for more resources for drug prevention and treatment, and stronger measures to fight drug-related crime.

The international cocaine market is undergoing seismic shifts, with purity levels and seizures in the main consumer countries going down, prices on the rise, and consumption patterns in a state of flux, noted Mr. Costa. “This may help explain the gruesome upsurge of violence in countries like Mexico. In Central America, cartels are fighting for a shrinking market.”

Over 40 per cent of the world’s cocaine is seized, mostly in Colombia, compared to less than 20 per cent of opiates – opium, morphine and heroin – captured, according to the World Drug Report.

In West Africa, a major transportation hub for trafficking to Europe, a decline in seizures seems to reflect lower cocaine flows after five years of rapid growth, the report said.

“International efforts are paying off,” said Mr. Costa, who launched the report along with newly appointed Director of the US Office of National Drug Control Policy, Gil Kerlikowske. Yet drug-related violence and political instability continue, especially in Guinea-Bissau, he added.

“As long as demand for drugs persists, weak countries will always be targeted by traffickers,” said Mr. Costa, adding that if “Europe really wants to help Africa, it should curb its appetite for cocaine.”

The new UNODC study reported that opium cultivation in Afghanistan, where 93 per cent of the world’s total is grown, declined by 19 per cent in 2008, and Colombia, which produces half of the world’s cocaine, saw an 18 per cent decline in cultivation and a 28 per cent decline in production.

“The more opium is seized in Afghanistan’s neighbourhood, the less heroin on the streets of Europe, and vice versa, the less heroin is consumed in the West, the more stability there will be in West Asia,” said Mr. Costa who plans to bring the message to a Group of Eight industrialized nations (G-8) ministerial conference on Afghanistan later this week in Italy.

Mr. Kerlikowske said that US President Barack Obama’s Administration is “committed to expanding demand reduction initiatives,” adding that through “comprehensive and effective enforcement, education, prevention, and treatment, we will be successful in reducing illicit drug use and its devastating consequences.”

The Report provides a number of recommendations on how to improve drug control, including the treatment of drug use as an illness.

“People who take drugs need medical help, not criminal retribution,” said Mr. Costa, appealing for universal access to drug treatment with the argument that people with serious drug problems provide the bulk of drug demand and treating this problem would contract the market.

Mr. Costa also called for an end of what he characterized as the “tragedy of cities out of control,” pointing out that most “drugs are sold in city neighbourhoods where public order has broken down. Housing, jobs, education, public services, and recreation can make communities less vulnerable to drugs and crime.”

Government enforcement of international agreements against organized crime, such as the UN Conventions against organized crime and corruption, and greater efficiency in law enforcement with a focus on the large volume of petty offenders, would also help international drug control efforts, he said.

Mr. Costa noted that in some countries, five times as many people are imprisoned for drug use compared to drug trafficking. “This is a waste of money for the police, and a waste of lives for those thrown in jail. Go after the piranhas, not the minnows.”

Source.

 

UN Backs Drug Decriminalization In World Drug Report

June 24th, 2009 – In an about face, the United Nations on Wednesday lavishly praised drug decriminalization in its annual report on the state of global drug policy. In previous years, the UN drug czar had expressed skepticism about Portugal’s decriminalization, which removed criminal penalties in 2001 for personal drug possession and emphasized treatment over incarceration. The UN had suggested the policy was in violation of international drug treaties and would encourage “drug tourism.”

But in its 2009 World Drug Report, the UN had little but kind words for Portugal’s radical (by U.S. standards) approach. “These conditions keep drugs out of the hands of those who would avoid them under a system of full prohibition, while encouraging treatment, rather than incarceration, for users. Among those who would not welcome a summons from a police officer are tourists, and, as a result, Portugal’s policy has reportedly not led to an increase in drug tourism,” reads the report. “It also appears that a number of drug-related problems have decreased.”

In its upbeat appraisal of Portugal’s policy, the UN finds itself in agreement with Salon’s Glenn Greenwald.

The report, released at the National Press Club in Washington, D.C., also puts to rest concerns that decriminalization doesn’t comply with international treaties, which prevent countries from legalizing drugs.

U.S. Drug Czar Gil Kerlikowske is scheduled to appear at the announcement of the report. (He has said “decriminalization” is not “in my vocabulary.”)

“The International Narcotics Control Board was initially apprehensive when Portugal changed its law in 2001 (see their annual report for that year), but after a mission to Portugal in 2004, it “noted that the acquisition, possession and abuse of drugs had remained prohibited,” and said “the practice of exempting small quantities of drugs from criminal prosecution is consistent with the international drug control treaties,” reads a footnote to the report.

The UN report also dives head first into the debate over full drug legalization. Last year’s World Drug Report ignored the issue entirely, save for a reference to Chinese opium policy in the 19th Century. This year’s report begins with a lengthy rebuttal of arguments in favor of legalization. “Why unleash a drug epidemic in the developing world for the sake of libertarian arguments made by a pro-drug lobby that has the luxury of access to drug treatment?” argues the report.

But the UN also makes a significant concession to backers of legalization, who have long argued that it is prohibition policies that lead to violence and the growth of shadowy, underground networks.

“In the Preface to the report,” reads the press release accompanying the report, “[UN Office of Drugs and Crime Executive Director Antonio Maria] Costa explores the debate over repealing drug controls. He acknowledges that controls have generated an illicit black market of macro-economic proportions that uses violence and corruption.”

Jack Cole, executive director of Law Enforcement Against Prohibition (LEAP) and a retired undercover narcotics detective, objected to the report’s classification of current policy as “control.”

“The world’s ‘drug czar,’ Antonio Maria Costa, would have you believe that the legalization movement is calling for the abolition of drug control,” he said. “Quite the contrary, we are demanding that governments replace the failed policy of prohibition with a system that actually regulates and controls drugs, including their purity and prices, as well as who produces them and who they can be sold to. You can’t have effective control under prohibition, as we should have learned from our failed experiment with alcohol in the U.S. between 1920 and 1933.”

Source.