Monday, October 01, 2007

Vice taxes, living wages, counterinsurgency and furry puppies

Tobacco has a fairly elastic demand curve when there is a significantly high change in price. The experience over the past fifteen years of various states raising their cigarette taxes by various amounts has consistently shown that higher taxes will do what they should be doing; discouraging consumption, most notably on the least addicted and most cash constrained subpopulations (young non-smokers who either never try cigarettes, or try them and decide the buzz is not worth the cost), and then over the longer term, reducing overall smoking rates among current smokers.

From a public finance perspective, this can be a bit of a problem if the incremental revenue derived from an increase in a tobacco tax is dedicated to a specific program. The problem is that as smoking rates going down both from natural die-off no longer replaced by new younger smokers, and current smokers quitting and thus not paying the tax any more, revenue goes down. This means the program either needs to be reduced in size, reduced in duration, funded from general revenue streams, funded from other dedicated streams, or increase the tobacco tax rate. Choosing to do the last just reinforces the revenue death spiral.

One option that most American politicians find politically palatable in this situation is to find another revenue stream that is either borne by non-voting members of their electorate such as car and hotel room rental taxes to fund stadiums, or is another use tax on a socially undesirable good. For instance, Allegheny County (Pittsburgh's county) is considering a 10% 'pour tax' on all alcoholic beverages served in the county.

However taxes like this will provoke large scale protests and political opposition from the legitimate groups involved in that industry. There is another potential solution and that is taxing prevelant and common activity that occurs at the margins of society in either tolerated gray or unrestricted black markets. And there is one massive area of opporutunity here for lawmakers who are looking for politically cheap(ish) new revenue --- and that is marijuana.

Robert Farley at TAPPED notes that weed is a massive cash crop in some of the most economically depressed areas of the country. The Appalachian spine is a hot bed of illegal marijuana growth as that area has virtually no other non-extractive industries that can sustain local economies at anything approaching comparative levels of risk-adjusted profits.

The estimated worth of seized plants alone far outstrips Kentucky's other crops. Federal statistics from the Department of Agriculture for 2005 show state receipts for tobacco were $342 million and corn was $336 million, compared with close to $1 billion of pot eradicated last year by HIDTA.

Over time, growing pot has become an "accepted and even encouraged" part of the culture in Appalachia, according to a 2006 report from the Office of National Drug Control Policy. Still, authorities complain that in some counties it is difficult to get a jury to indict, much less convict, a marijuana grower.....

Efforts in all 50 states haven't kept marijuana production from increasing tenfold in the past 25 years to 22 million pounds in 2006,

So we have a failed policy, a valuable industry that operates anywhere from violent black markets, to socially tolerated gray markets and a political structure that produces plenty of expensive but relatively non-violent crimes, and discourages broad taxation to fund positive present value social programs such as SCHIP and Head Start .... more on this in a minute....

Garance Franke-Ruta
passes along a failure in American drug eradication in the pursuit of prohibition efforts in Afghanistan.

As Afghanistan struggles to cut its raging opium production, aid workers try to find alternative crops, but for some former poppy farmers the choice was easy — they planted marijuana instead.

The same decision made in Kentucky is being made in Afghanistan --- the threat of arrest, detention, fines and destruction of growing marijuana is significantly less than the probable reward, even with signifcant elements of the US Army looking to target this behavior. The decision is simple, the black market is producing significantly high prices, and there is little to no sustainable industry that pays decent wages, and subsistence agriculture by definition is low productivity, low margin business.

However the eradication policy in Afghanistan and the crop shifting from opium poppies to marijuana threatens American national security, or at least the lives of US soldiers. Part of the producer's surplus generated by the black market is being diverted to 'security' organizations that can guard the production of marijuana. In most cases this security is either provided by the Talibab, associates/allies of the Taliban, or indepedent warlords. In any case, this further weakens the legitimacy of the Kabul central government which makes the American end state strategic objective more difficult to accomplish.

I wonder if someone could advance a two or three-for --- legalize marijuana, treat it like alcohol or tobacco with similiar levels fo taxation dedicated to popular and cost effective and efficient programs, while at the same time reducing back end crime control expenditures, and furthering US objectives in Afghanistan ----

Yeah, I know, you should believe that I am high right now for even thinking about this --- despite the fact that anything stronger than a good single malt, or bad diner coffee has no real attraction for me....

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