New York Governor Seeks to Tax Illegal Drugs

February 18, 2008

The Washington Post yesterday covered New York Governor Eliot Spitzer’s proposal to tax illegal substances:

Gov. Eliot L. Spitzer (D), struggling to close a $4.4 billion budget gap, has proposed making drug dealers pay tax on their stashes of illegal drugs. The new tax would apply to cocaine, heroin and marijuana, and could be paid with pre-bought “tax stamps” affixed to the bags of dope.[…]

Taxing illicit drugs gained popularity during the 1980s and early 1990s, when prosecutors and law enforcement authorities were pushing for mandatory sentences and other measures to signal a crackdown on drugs and drug use.

“It was a way of getting tougher on criminals,” said Joseph D. Henchman, tax counsel for the Tax Foundation, a Washington-based educational group. “It kind of boggles my mind. If you want to get tougher on drug dealers, increase the penalties.”

“It’s just weird to put an excise tax on an illegal substance,” Henchman said. “When you tax something, it’s a way for the government to say you can have it, but we want a piece of it. . . . It’s sending a mixed signal.”

One justification for taxes is that in return for submitting to taxation, payers receive the benefits of property protection, courts, and so forth. Drug excise laws are at odds with that view, since taxpayers still get no legal protections (and that is why the Tennessee Court of Appeals struck down the tax last year).

These taxes have other problems. Arizona, which was the first state to enact a drug excise tax in 1983, repealed it in 1997 after a double-jeopardy challenge (the taxpayer had purchased and affixed the tax stamps, but was arrested for drug violations anyways). Because convictions are not needed to seize funds or freeze accounts to collect taxes, the burden of proof is also lower. It’s also just another example of states targeting some unpopular practice for punitive easy taxation, allowing the majority to consume more government services than they’re willing to pay for.

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