Colorado’s Marijuana Tax Revenue likely to fall over time like New York’s Cigarette Tax Revenue

Posted by PITHOCRATES - March 22nd, 2014

Week in Review

States with huge budget deficits are watching Colorado and their marijuana sales tax.  As they consider following Colorado.  The proponents of marijuana decriminalization point to Colorado and say, “See?  Make it legal and tax it.  And everybody wins.  People can smoke until they get lung cancer.  And the state can rack up tax revenue to pay for, of course, schools.  It’s always schools, you see, because if you oppose tax revenue for schools you hate children.  And taxing sin is good, too.  Because we shouldn’t be doing those nasty things anyway.  So sin taxes work.  Just look at how well those cigarette taxes are working (see As taxes on cigarettes go up, so does smuggling, study finds posted 3/22/2014 on FoxNews Politics).

More than half of the cigarettes for sale in New York are smuggled into the state illegally – the highest percentage in the country, according to a recent report from the Tax Foundation.

According to the non-partisan research group, increased excise taxes on cigarettes to discourage smoking have, in fact, created lucrative incentives for black market trafficking between states…

According to the U.S. Department of Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives, even though authorities have taken steps to reduce cigarette smuggling, nearly $5 billion in revenue in 2010 was lost because of smuggling.

Well, as it turns out, sin taxes don’t work as well as they thought they would.  They increase crime.  Because smuggling cigarettes is less risky than smuggling class one narcotics.  For cigarettes aren’t illegal.  So criminals can turn from something more risky, like smuggling class one narcotics, to something less risky.  Smuggling legal cigarettes.  Tax revenue from Colorado’s marijuana tax will probably decline over time.  As a black market comes to Colorado to sell tax-free marijuana.  Just like a black market sells lower-taxed cigarettes in higher taxed cities.

So you have additional crime on the one hand.  A black market drug-dealer network much like what exists today.  But one that can operate in less fear as the penalty for getting caught is a lot less than what it used to be.  Making it easier for our kids to smoke marijuana.  Either by buying it from a better supplied illegal drug dealer.  Or stealing some from their parent’s stash.  Or someone else’s stash.  For there will be a lot of stashes to steal from.

So the crime element is bad.  But as the black market takes off tax revenue will fall from legal sales.  Just like it has for cigarettes.  Leaving an over-spending state still short of tax revenue.  But now with a marijuana black market that they must police.  And a state full of potheads that will likely NOT help the state produce the best and brightest for the high-tech jobs in their economy.  The higher-paying kind of jobs that pay more income taxes.  Because once you have your weed and some cool tunes what do you need a high-stressed job for?  Which will probably make the experiment in Colorado not go as they thought it would.  Something other states should consider before following Colorado down this road.

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Canada raising the Price on Medicinal Marijuana on Average 159%

Posted by PITHOCRATES - December 15th, 2012

Week in Review

Criminals like high state cigarette taxes.  For it makes for a lucrative business selling cigarettes in a high-tax state that were purchased purchased in a low-tax state.  The higher the tax the bigger the profits in smuggling cigarettes across state borders.  And best of all if you get caught the penalty isn’t that bad.  For cigarettes are legal.  Which causes a problem in those high-tax states.  For when they raise the tax rates drug runners stop running drugs across the border.  And turn to cigarettes.  As they did in Canada during the Nineties.  Illegal drug trafficking went down.  Cigarette smuggling went up.  And tax revenues fell.

And now the Canadians are trying to raise tax revenue again.  Only with a different legal product (see Medicinal marijuana prices in Canada to rise by The Canadian Press posted 12/15/2012 on CBC News).

Those who use marijuana for medicinal purposes in Canada may want to reach for the aspirin when they learn about a pending price increase.

Proposed regulations posted by Health Canada say the price of medical marijuana should rise to $8.80 cents a gram —currently it ranges from $1.80 to $5 a gram…

Currently, those who wish to use medical marijuana must apply for a permit from the government in order to either grow it themselves or buy it from a single government grower.

This was one of the arguments for decriminalizing marijuana.  You could tax it.  And flood the state coffers with new tax revenue.  Or you can do it one better.  Like the Canadians.  Who don’t just tax it.  But they sell it.  And being the only grower in Canada they can charge whatever they want.  Which they appear to be doing.  Raising the price on average 159%.

Hmmm.  A high price?  A legal product?   And a nearby border?  Sounds familiar.  Something tells me that they are not going to collect what they think they are with these price hikes.

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Government’s Insatiable Greed will always Keep Smoking Legal

Posted by PITHOCRATES - March 18th, 2011

The FDA may Ban Menthol Cigarettes

Everyone knows that smoking is bad for you.  When you go to the hospital part of your diagnoses includes “Do you smoke?”  And your answer to this question will determine your treatment.  It’s that bad.  And we all know it.  Have known it for the longest of time.  The only thing keeping smoking alive in this country appears to be cool celebrities who smoke.  And kids who want to be cool emulating cool celebrities who smoke. 

Well, it looks like things may be changing.  Cigarettes now fall under the jurisdiction of the FDA.  And they may be doing something to put an end to this filthy habit (see FDA panel says ban on menthol cigarettes would benefit public health by Andrew Zajac, Washington Bureau, posted 3/18/2011 on The Los Angeles Times).

A Food and Drug Administration advisory panel Friday said that “removal of menthol cigarettes from the marketplace would benefit public health in the United States…”

Antismoking groups hailed the panel’s advice and urged the FDA to follow through with a ban.

Yeah, well, don’t get your hopes up.  It is unlikely that the government will ever ban menthol cigarettes let alone tobacco products in general.  Why?  They’re addictive.  Well, yeah, you say, that’s why the FDA wants to ban them, yes?  They’re bad for you AND they’re addictive.  I mean, what government that cares for its people wouldn’t want to ban these horrible, nasty things?  I’ll answer that with one word.  Taxes.

Tobacco companies also warned that a menthol ban would lead to a large black market, loss of tax revenue and make it easier for underage kids to smoke.

The 12-member advisory committee acknowledged that development of a black market was a possibility, but left it to the FDA to determine the seriousness of the threat.

A black market is serious.  Because it would only compound the loss of tax revenue problem.  And that’s what the government sees when they look at cigarettes.  A very lucrative stream of tax revenue.  And they will never turn off that spigot.

Big Government Loves Big Tobacco

For the non-smokers out there, have you noticed the price of a pack of cigarettes?  They’re pretty expensive.  But it’s not the tobacco companies making them expensive.  It’s government.  There’s federal and state taxes.  And some cities even add their own tax.  They’re all jumping onto the gravy train.  They thank God for the tobacco companies and their addictive products.  They’re great for taxing.  And even suing.  Government just loves them.  And the last thing anyone in government wants (at any level) is for anyone to quit smoking.

Let’s start at the top and work backwards.  The federal excise tax currently on cigarettes is $1.01 per pack.  State taxes vary.  Virginia, where they grow tobacco, adds $0.30 per pack.  The lowest tax is Missouri which adds only $0.17 per pack.  New York tops the states and adds $4.35 per pack.  All the other states fall somewhere in between, averaging $1.45 per pack.  (All cigarette tax data pulled from Campaign for Tobacco-Free Kids).

Some cities and counties add their own tax.  New York City adds $1.50 per pack.  Chicago adds $0.68 on top of the $2.00 Cook County adds.  As you can see, cigarettes can be very lucrative to government.  As long as no one quits smoking.  So you can be pretty sure that government won’t ever kill this golden goose.

Balancing Budgets on the Backs of Addicted Smokers

But governments can get greedy.  That dirty, sexy money can do this to you.  It’s intoxicating.  And there’s just so much of it.  So they keep raising their taxes.  But sometimes they go too far.  Because it’s a small world after all.  And there’s another state just a short drive away.  Across the border (see Chicago Cigarette Tax: Study Shows 75% Of Chicagoans Buy Cigarettes Out Of City by Will Guzzardi posted 5/20/2010 on The Huffington Post).

According to the University of Illinois at Chicago, 75 percent of sampled cigarette packs found on the streets of Chicago come from out of the city, costing roughly $120 million a year in revenues…

When the packs were collected in July 2007, state and local taxes on a pack of cigarettes in Chicago totaled $4.05. They were only $1.37 outside of Cook County. This made Chicagoans 60 percent more likely than their collar-county counterparts to shirk cigarette taxes.

Increase taxes and sales drop.  And ‘black market’ activity increases (smuggling out-of-state cigarettes across the border).  A very profound lesson that so few in government ever learn.  Because of their greed, of course.

The fear of sending business to Indiana may poke a hole in the ambitions of state lawmakers hoping to create a budget for the coming fiscal year. With Gov. Pat Quinn’s controversial plan to increase income taxes unlikely to come to fruition, the state is at a loss for new revenues. And cuts to public services like education have been met with vocal opposition.

Legislators have repeatedly argued that a new cigarette tax would help stave off some of those education cuts. But with the General Assembly already on recess and no resolution in sight to the budget mess, this new report may only serve to impede consensus in an increasingly fractious legislature.

Hmmm….  Using cigarette taxes to pay for education?  Funny.  Those law suits against Big Tobacco and the high taxes on cigarettes were always to counter the ill effects of smoking.  Or so said government.  Could Scott Walker be right in Wisconsin?  Could the salary and benefits of public sector workers be so great that they have to take money from health care to pay for them?  Perhaps.

New England/New Jersey Adopt Reaganomics

Of course, one state’s financial woes are another state’s gift.  Especially for those businesses near the border (see NH, RI, NJ buck trend, propose cigarette tax cut by The Associated Press posted 3/18/2011 on Yahoo! Finance).

Bucking a national trend of raising cigarette taxes, New Hampshire, New Jersey and Rhode Island have considered reducing theirs, hoping to draw smokers from other states and increase revenue…

It’s very unusual for states to lower the tax, University of Illinois at Chicago economics professor Frank Chaloupka says. The increase in sales isn’t enough to offset the drop in state tax revenue, he says.

Instead of lowering the tax, states have enacted 100 increases over the past decade, he says.

Of course, they’re applying the opposite lessons of Chicago.  Cut taxes, increase sales.  And decrease black market activity.  At the expense of their high-tax neighbors.  Chicago would love to hate these states.

Smoker Aaron Evans stopped Thursday at a convenience store in Haverhill, Mass., for a sandwich and a pack of Marlboro cigarettes. The pack cost him $7.13. A couple of miles away, a bigger pack of the same smokes would cost him $5.99 at a market in New Hampshire, which already has significantly lower taxes than Massachusetts.

That’s the funny thing about people.  They just don’t shop for the best price when shopping for a plasma TV.  They ALWAYS shop for the best price.  And if lower taxes are only 15 minutes away, guess what?  People will save money and drive the extra distance.  Even if they have to buy in bulk to offset the added cost of driving.

Danny McGoldrick, research director for the Campaign for Tobacco-Free Kids, said other states aren’t cutting their tax rates in these tough fiscal times because they need the money. Raising the tax, he said, produces revenue despite resulting in a desired decrease in the number of smokers.

But state Rep. Christine Hamm, a Hopkinton Democrat, called the move “fiscally stupid.”

“No state has cut their tobacco tax and seen a revenue increase,” she said.

I can think of a state that cut taxes and increased revenue.  The United States.  When Ronald Reagan cut the tax rates, federal receipts nearly doubled by the time he left office.  Cutting taxes works.  For a very simple reason.  People have more money to buy more things.  If they spend all of their disposable income on cigarettes, they may not eat out as often.  And a waitress may lose her job.  Who then has to cut back on her spending.  And so on.  The more money you keep in the private sector, the more economic activity there is.  And the more economic activity there is the more taxes government can collect.  But this is another profound lesson that so few in government ever learn.

Cigarette Taxes Pay for Public Sector Workers

For all their talk government doesn’t want smokers to quit smoking.  That’s why they will NEVER ban cigarettes.  They make far too much tax revenue on smokers.  And cigarettes are better than alcohol.  Because you can smoke and drive.  Smoke at breakfast.  Stand outside and smoke at work.  Smoke at dinner.  At the bar.  After sex.  Hell, to government, smoking is sex.  Nothing is better.  They can tax the bejesus out of it.  And because everyone knows smoking is bad for you people accept these outrageous taxes.  Even smokers.  Because we so demonize them that they think, well, yes, I guess I deserve it.

And the ill health effects of smoking?  It’s a pretty specious argument when municipalities are raising cigarette taxes to pay for their public sector workers.  When you raise cigarette taxes to pay for teachers you’ve lost that argument.  Which leaves nothing but greed.  And this is why cigarettes will always be legal.  And taxes will be high.  Because of government’s insatiable greed.

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LESSONS LEARNED #21: “The reason why health insurance is so expensive is because it is not insurance.” -Old Pithy

Posted by PITHOCRATES - July 8th, 2010

THE LONGER YOU live, the more you see and hear.  Here’s a smattering of our collective experiences.

YOU CAN LEARN a lot working in a small business.  I did.  I did about everything you could in a small business.  Including keeping the books.  And getting fired.  Over money.  It’s always about money, isn’t it?  And broken promises.  But I digress.

The business owner had a couple of kids.  As did some other ‘key’ employees.  I didn’t.  I was a young, single man.  Rarely went to the doctor.  So the ‘Cadillac’ health care plan we had meant little to me.  But it was important to them.  So important that it was a serious financial burden to the company.  The owner scrimped and saved elsewhere to maintain it.  Including my salary.

I helped to bring us through a difficult time.  I did my part.  Now it was time for the owner to do his part.  But he forgot those promises.  (Important life lesson?  Get things in writing.)  We had words.  I considered my options all the while dealing with one of the ‘key’ employee’s wife.  Who was always calling to bitch about the medical plan.  She didn’t like her co pays, that the non-generic drugs cost more, being billed for something that SHE thought should have been covered, etc.  I talked to her (it seemed like) at least once a week.  So and so who worked at such and such didn’t have to pay for this or that or the other thing.  And, perhaps, in some fairyland, they didn’t.  Our plan was good.  Above average.  She just didn’t want to pay for anything.  In fact, she wanted the business to pay for the things the plan didn’t cover.  She wanted it all.  But didn’t want to pay a dime for any of it.

She thought it was an outrage that she had to pay her bills.  But she took the health care.  Just wanted others to pay for it.  Even if cuts had to be made elsewhere.  Even if others didn’t get promised raises or bonuses.  As long as the cuts didn’t affect her. 

My experience is only a microcosm, but it applies to the big picture.  Our health care system is the best in the world.  But the way we go about paying for our health care is threatening to destroy that great system.  We’re voting ourselves the treasury.  We want more and more things but forget that old saying.  There’s no such thing as a free lunch.  Costs are costs.  And someone has to pay them.  If we don’t, others have to.  Until they choose not to.  And then what are we going to do?  Run to government?

Well, yeah.  There has to be someone we can take more money from.  Make those young and healthy people buy insurance so more people contribute into the big insurance pot and bring down the cost per person.  If they pay more, I wouldn’t have to pay as much.  Or my fair share.

Don’t like that?  Why, then let’s just nationalize it.  Wait a tic, nationalize care sucks.  So let’s not nationalize it.  Let’s do that other thing.  It’s just like nationalizing but we get to keep the things we have now.  Single payer.  Yeah, that’s it.  Let’s go with a single-payer system.  We keep the care we have and tax the rich to pay for it.

Or let’s be like Canada.

I DROVE INTO Quebec once from upstate New York.  At Canadian customs, the guy asked if I had any cigarettes. 

“No,” I said.

“Really?” he asked.

“No,” I said.  “I don’t.”

“Come on.  You must have some cigarettes.”

“No.  I don’t have any cigarettes.  I don’t smoke.”

“I don’t believe you.”

“Well, I don’t.”

He stared at me, smiling.  Waiting for me to break, I guess.  I didn’t.  I was confused.  Customs never interrogated me like that before.  He kept staring.  And smiling.  I looked backed.  Befuddled.

“Okay,” he finally said.  “You can go.”

And I did.  Found out later what that was all about.  Obscene cigarette taxes.  In an effort to stop people from smoking cigarettes.  But it opened a huge black market.  Drug dealers switched from smuggling in drugs to smuggling in cigarettes.  It was as profitable.  And less punishable.  If caught.

CANADA HAS A large tourism industry.  And high taxes.  They tax everything.  Making it costly to be in Canada.  They have a Value Added Tax (VAT).  It’s called the Goods and Services Tax (GST).  That means they tax most goods and services you pay for from the first level of being to its final delivered form.  They tax the thing you buy. And they tax the things that made that thing you buy.  At every level, when someone adds value, they add another GST.  Taxes upon taxes.  They can collect a lot of money.  But they also raise prices.  Which makes everything more expensive.  So Canadians can’t afford to buy as much as they once did.  Less demand contracts supply.  Lays people off.  They spend less.  Pay less in taxes.  Collect unemployment benefits.  Government collects less and spends more.  Deficit spending.  They raise taxes to offset the deficit spending.  And the cycle repeats.

There’s been talk about establishing a VAT in the United States.  Because of out of control government spending.  Those who support it say it will help the economy.  They lie.  Taxes don’t help economies.  At least, they haven’t yet.

In order not to hurt their tourism industry the Canadians (for a time, at least) let tourists get a refund on the provincial and GST taxes paid while in Canada.  Canadians have no choice.  But tourists do.  They could choose not to go Canada.  So they allowed the refund because they knew that higher taxes don’t stimulate consumer spending.  And they wanted stimulated consumers to come to Canada to spend.

SOME CANADIANS DO have a choice, though.  Those who live near the US-Canadian border.  I’ve worked with Canadians who traveled to America to work.  They love their country.  Believe America could learn a lot from her.  But they buy their gasoline in the States.  And everything else they can to escape their own high taxes.

WHEN MY DAD was in the hospital for quintuple bypass surgery, a few of his nurses were Canadian.  They said a lot of Canadian doctors and nurses crossed the border into the United States for better paying jobs.  My dad had no complaints.  They were good nurses.  He was grateful for their care.  That’s what high paying jobs do.  Attract high quality talent.

I SAW A fund drive once while in Canada.  There was a sign on the lawn with a colored-in bar showing where they were in achieving their goal.  A hospital was raising money to buy something.  An MRI machine.  For there was none in this medium-sized Canadian city.

I WAS AT a small community hospital (in an American city) walking the grounds with the facilities manager.  He had to close a small road intersection on campus that doubled as the helipad.  The university hospital’s medical helicopter was making a test flight to this small hospital.  I asked him if they flew in many patients here.  He said no.  But they flew critical patients at this hospital to the university hospital (about 30 miles away) where they had a better chance for survival.

I ONCE WENT on a skiing vacation throughout New England and Quebec.  I skied Jay Peak, Mont Tremblant, Mont-Sainte-Anne, Sunday River, Stowe and Killington.  I remember a helicopter flying overhead at one.  (It’s been awhile, but I think it was in Canada).  There was a sanctioned FIS ski event there.  Part of the requirements for a high-speed ski event is a readily available rescue helicopter to immediately air-lift a seriously injured skier off the hill.

NATASHA RICHARDS HAD a freak accident while taking a ski lesson at Mont Tremblant in Quebec.  She fell.  Like we all have while skiing.  She got up.  Like most of us do.  Laughed it off.  She felt fine.  But there was now a silent killer at work.  She declined immediate medical attention.  After awhile, she started to feel ill.  She would subsequently die from an epidural hematoma due to a blunt impact to the head.  A shame it was only blunt.  Had it knocked her unconscious, she may have survived.  That would have demanded immediate medical attention.

She died because her initial injury was not painful enough.  She therefore had little cause for concern.  As many of us no doubt would have if we were in her place.  Critical time was lost.  Time that she couldn’t get back.  There’s no one to blame.  It was a freak accident.  What made the headlines, though, was an interesting fact.  The province of Quebec did not have a single medical helicopter (probably wouldn’t have made a difference for Richardson).  The province had determined that the cost of a helicopter system was greater than the perceived benefit.

SO THERE’S A smattering of health insurance, tax and health care anecdotes.  A small smattering, but nevertheless a smattering you can draw some conclusions from.  First and foremost, people are cheap bastards.  And they have an entitlement mentality.  Put the two together and you’ve got an ever-expanding, under-funded, welfare state.  And that can only lead to one place.  Bankruptcy.

You can’t keep raising taxes on people to solve problems.  They’re just not going to whistle a happy tune and keep paying.  They will make efforts to evade those taxes.  Or they’ll simply cut back on their spending.  And when they do, they will create other problems in the process.  Those unintended consequences that have bedeviled government planners since the dawn of government planning.

The Canadian health care system is not the utopia some claim it to be.  It’s big.  And costly.  Bureaucrats conduct cost-benefit analysis.  It’s cold and impersonal.  What is the cost per unit life saved by having a medical helicopter system?  Does the mean wait-time justify adding another MRI in a geographic region?  Or would the resultant excess capacity from a second MRI be too wasteful?  And what is the acceptable mean wait-time for a procedure?  Would a 2% cost savings from a reduction in staff be acceptable if the corresponding rise in mortality rates is kept at or below 1%?  It’s all very analytical and rational.  But when it’s your loved one in a critical condition, you’re rarely analytical and rational.  And you’ll do just about anything.  Even go to the United Stated and pay out of pocket for medical care.

Of course, if the United States adopts a Canadian system, the Canadian system should improve.  Without those better paying jobs a short drive from the border, those doctors and nurses would probably stay in Canada and work within the Canadian system.

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