taxation

Originally posted on April 25, 2016. 

Don Stevens is the mayor of North Bonneville, Washington, a town of about 1,000 people on the banks of the Columbia River near the Oregon border. Using authority granted by a state statute, Stevens established a retail marijuana outlet owned and operated by the town. He wears a shirt that says “Reefer Madness is not a documentary,” and his business cards list his job title as “The Marijuana Mayor.” Stevens thinks North Bonneville’s outlet is the only one of its kind in the country, but that is likely to be only temporarily true. North Bonneville’s initiative is part of a broader movement to legalize marijuana, regulate its distribution, and reap benefits for governments.

The Spread of Marijuana Legalization

As of January 2016, the states of Colorado, Washington, Oregon, and Alaska had authorized the sale and consumption of social marijuana. Twenty-three other states permitted use of marijuana for medical purposes. Governments benefit, not just by reducing crime but also from new revenues. According to the Washington Post, Colorado expected revenues of over a billion dollars in 2016. The realities of economic competition suggest that legal marijuana eventually will become as commonplace as alcohol.

Legalization also makes sense as good public policy. In his 2016 state of the state speech, Vermont Governor Peter Shumlin proposed to allow the sale and possession of small amounts of marijuana. He acknowledged that drug addiction was a threat to Vermont’s social fabric and blamed pharmaceuticals such as OxyContin “which lit the match that ignited America’s opiate and heroin addiction crisis.” But Shumlin argued that marijuana falls into a different category and “should be authorized and regulated by the state.” He asked lawmakers to cooperate with him to develop legislation “that thoughtfully and carefully eliminates the era of prohibition that is currently failing us so miserably.”

Outright prohibition fails because demand for marijuana distorts the economics of legal production. A January 2016 report from the Associated Press described the exportation of marijuana from Colorado to other states, noting the various creative methods used in this distribution, such as “the one in which authorities say 32 people used skydiving planes and posed as licensed medical marijuana caregivers and small business owners to export tens of thousands of pounds of pot grown in Denver warehouses, usually to Minnesota.” This operation made more than $12 million in four years according to criminal indictment, because profits follow the trail of illegality. As Governor Shumlin argues, legalization will reduce the economic incentives for marijuana smuggling.Outright prohibition fails because demand for marijuana distorts the economics of legal production. Profits follow the trail of illegality, and legalization will reduce the incentives for marijuana smuggling. more...

All U.S. states provide tax credits and exemptions to older Americans, who clearly benefit and appreciate the help. Of course, people retired from the labor force do not owe payroll taxes, and their income tax rates may fall as well. Nevertheless, most citizens over age 65 must get by on relatively fixed budgets – and income for the typical older household is about half the level for all U.S. households. For many seniors, the cost of state and local taxes can loom large.

Not just older residents, but entire states may reap benefit from these tax breaks for seniors. Migrant retirees may move in, establishing new homes and spending pensions earned elsewhere. But there can also be disadvantages for localities and states that provide large and growing tax breaks to older residents. The pros and cons become evident when we look more closely at the various kinds of elder tax abatements and consider their consequences in the context of growing public budget pressures.  more...

The most important debates in U.S. politics concern the size and role of government, as the polarized parties offer contrasting paths forward. Republicans urge holding the line on taxes and limiting domestic expenditures. Democrats aim to preserve government functions and make some new investments—and call for tax increases to support these choices. As citizens and analysts weigh these options, it helps to put U.S. fiscal policy in cross-national perspective. Compared with other developed countries, the United States has very low taxes, does little to fight inequality, and has an extraordinarily complex tax code that undermines faith in the system. more...

“Almost half of all Americans pay no taxes!” That’s the claim bandied about in elections and overheated television talk-fests. It refers only to federal income taxes, from which various groups are exempt. But many other taxes are also collected at the federal, state, and local levels. When all kinds of taxes are added up, almost all Americans pay substantial amounts.  In fact, poor and middle-income people frequently fork over higher shares of their incomes than the very rich.

Federal Income and Payroll Taxes

The U.S. federal government relies on two big taxes collected from large numbers of Americans: the federal income tax and payroll taxes regularly deducted from wages and salaries to cover Social Security and Medicare benefits. Income and payroll taxes each contribute about 40% of federal revenues. Almost half of U.S. households currently do not owe federal income taxes, but over three-fifths of these “non-filers” are workers who contribute very substantial payroll taxes. For example, Americans making the lowest incomes pay nearly 9% of their wages in payroll taxes, about the same percentage as middle-income workers pay.

Only about 17% of American households pay neither income nor payroll taxes, because they are headed by people in special sub-groups:

• Elderly men and women, who previously contributed payroll taxes during their working lives, living on their Social Security benefits.
• Students or disabled individuals.
• Workers unable to find jobs. During the recent recession, the numbers of long-term unemployed people not filing income tax returns went up.
• Active-duty members of the U.S. military, who do not have to pay taxes on their combat pay and do not owe income tax after having been deployed. more...
  

Across the United States, tens of millions of residents have been arrested for violating marijuana laws. Arrests for offenses related to marijuana have increased dramatically since 1992. In 2010 alone, there were 853,838 arrests. Remarkably, more than half of all drug-related arrests that year involved marijuana alone. And almost nine of every ten people apprehended for marijuana offenses are charged with mere possession, not sales or distribution.

America’s efforts to reduce marijuana use over the past four decades have largely depended on arrest, imprisonment, incarceration—and, recently, the seizure of private property through asset forfeiture laws. The aim of such heavy legal firepower is to deter potential consumers, reduce marijuana use, limit availability, and increase the price of the drug. But existing research suggests that these goals have not been achieved. Instead, prices have declined and increasingly potent marijuana has become more readily available to growing numbers of users—even as arrests have climbed. Developments are not the same in all states and localities, but overall there is no clear indication that intensified enforcement decreases marijuana use. more...

Health reform has many popular parts—rules against insurance company abuses; subsidies and tax credits to make health coverage affordable for millions; improvements in Medicare. But controversy persists about the “individual mandate” rule—which says that everyone must either have health insurance coverage or pay a fine.

Attacks have intensified since the Supreme Court decision to uphold the Affordable Care Act, because the mandate fine was declared a valid exercise of the taxing power assigned by the Constitution to the federal government. Opponents of health reform denounce the mandate as “tyranny” and say that it amounts to a big “middle class tax increase.”

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