New York 'Crack Tax' Proposal Is Derided
Many States Aid Enforcement With Levy on Illicit Drugs

By Keith B. Richburg
Washington Post Staff Writer
Sunday, February 17, 2008

NEW YORK -- If you can't beat it, tax it.

That seems to be the axiom in New York these days, where 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.

Some critics in the legislature are asking what the governor has been smoking.

"I guess if it moves, he'll tax it," said Republican state Sen. Martin J. Golden, who dubbed the proposal "the crack tax." Some opponents said that because cocaine and weed would be subject to the new levies, it should more aptly be called "the crack-pot tax."

"How do I explain to my 16-year-old son that we're giving a certain legitimacy to marijuana, cocaine and heroin?" asked Golden, a former New York City police officer who represents a Brooklyn district. "We are taxing an illegal substance." He added, "Is prostitution next?"

On the other side of the aisle, some Democrats, too, were stunned by the plan. "My initial instinct is: I don't understand it," said Bill Perkins, a state senator from Harlem. "Most of the dealers I'm familiar with are petty crack dealers -- most of them are crackheads. They are broke, to say the least. I just don't understand how you impose a tax" on broke crackheads, he said.

Taxing illegal drugs is more widespread than is generally known. At least 21 states have some form of tax for illicit drugs, although some of those laws have been challenged in courts, and others have fallen into disuse. Almost all the remaining drug-tax laws are used mainly by local law enforcement agencies as a way to seize drug money and fund counter-narcotics operations.

The controversial idea grew out of the efforts to fight bootleggers such as Al Capone during Prohibition -- going after the bootleggers for unpaid taxes often required a lighter burden of proof than a criminal prosecution. 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."

Last September, a state appeals court ruled a drug law in Tennessee unconstitutional, saying that an illegal substance could not be taxed. In Massachusetts, that state's supreme court in 1998 ruled a drug tax was an unconstitutional form of "double jeopardy," so it is not used, although it remains on the books, according to the revenue department in Boston.

Allen St. Pierre, executive director of NORML, the National Organization for the Reform of Marijuana Laws, called the drug tax "a wacky idea. It's a quintessential example of the absurdity of the war on some drugs."

St. Pierre called it "bizarre, to say the least." Taxing drug dealers, and especially users, he said, "is like squeezing blood from a rock."

The Federation of Tax Administrators represents the tax collectors for the 50 states and the District, and Verenda Smith, the group's government affairs associate, called the drug tax an effective law enforcement tool. "The whole thing is about law enforcement," Smith said.

Most states with the law sell stamps that drug dealers can buy in advance, like what Spitzer is proposing. Because no drug dealers are known to buy the stamps and pay their tax in advance, the tax is usually levied after they are caught.

Some states have designed distinctive drug stamps, often depicting a marijuana leaf. Nebraska's drug stamp depicts a rolled joint crossed with a syringe in front of a skull and what appears to be a headstone, with the label "R.I.P."

"People do walk in and buy the stamps. We assume they are all stamp collectors," Smith said. "I believe only one person out of 50,000 has ever been a drug dealer." To avoid a court challenge, she said, the law has to allow anyone to buy the stamps without showing identification or alerting authorities that he or she is a drug dealer.

In many Southern states, such as North Carolina, the illicit substances tax is also applied to moonshine.

In New York, Spitzer proposed the drug tax in his 2008-09 budget as a way to deal with a projected shortfall, and in a memo said taxing drug dealers would raise $13 million in the coming fiscal year. The governor's office said the bill would contain strict secrecy requirements, so drug dealers who paid their taxes would not be incriminating themselves.

A tax stamp for a gram of marijuana would cost $3.50, and $200 for a gram of cocaine, "whether pure or diluted," according to the governor's proposal.

When Robert Megna, the New York tax commissioner, went to push the tax before a hearing at the state assembly, he was grilled by assembly member Jeffrion L. Aubry of Queens.

Aubry said he is concerned about figures compiled by a Queens College sociology professor, showing that between 1997 and 2006, about 360,000 New Yorkers were arrested for marijuana possession -- usually small amounts in a single joint, or nickel or dime bags -- and 85 percent of those arrested were black or Hispanic. Most of those received probation.

But Aubrey, in an interview, said he is concerned that adding a new tax would create more costs to the city by forcing police to impose a new charge: tax evasion.

"Our prison population has been declining," Aubry said. "This runs counter to that. . . . The poor, and minorities, are the ones who end up arrested, convicted and sentenced." Aubry vowed to fight what he called a "boneheaded" proposal.

Megna replied, "It's not our intent to burden certain portions of the population."

In the current anti-tax environment, politicians in states such as New York are reluctant to raise taxes more on average taxpayers, and prefer to cover budget shortfalls through what experts call "sin taxes," on products such as cigarettes and alcohol, or on activities such as visiting strip clubs. Texas, for example, recently introduced a levy on strip clubs known as "the pole tax."

New York, for its part, already taxes lap dances at strip clubs, but only if they are performed in the club's V.I.P. room, not on the couches in the main area of the club.

Strippers, like drug dealers, normally are not known to complain about more taxes. "I guess they didn't expect the drug dealers of New York to rise up and join the anti-tax movement," Aubry said.

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