Tennesee Addicted to Drug Tax Revenues?

July 8, 2005

Despite looming questions of constitutional legitimacy and economic efficiency, Tennessee’s new tax on illicit drugs—officially a “controlled substance tax” that applies to illegal moonshine as well—is bringing in higher than expected revenues. From the Tennesseean:

Tennessee modeled its program to collect taxes on illegal drugs after North Carolina’s, but early returns indicate that the Volunteer State’s 6-month-old effort has been more successful.

A report released yesterday showed that Tennessee had collected about six times more taxes on controlled substances as did its neighbor to the east in its first six months. Substances taxed include cocaine, crack, methamphetamine and marijuana.

The 10-person unit of the Tennessee Department of Revenue reported that it had collected $606,687 and assessed more than $15 million. The department has spent $376,400 since the program began in January.

North Carolina’s Department of Revenue collected $107,000 in the six months after its program began in January 1990.

Normally, the state bringing an economic activity into the tax system represents a stamp of legal legitimacy. But not in this case.

This raises an interesting question: what is the dividing line between tax and criminal fine in an age when the former are increasingly used to guide behavior in the same way as the latter—rather than simply functioning as a neutral tool designed to raise revenue for programs?

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