Smokin’ Tariff

by Martin Harris

Recently, your Humble Scribe, with no expertise in street jargon, went to the Bing on-line dictionary for the definitions of “gnarly”, a highly adaptable adjective which apparently can mean either good or bad, as you wish; and “smokin’”, which seems to mean “excellent”. Both, but particularly the latter, seem to be appropriate for, and applicable to, the plans in blue-politics States to Legalize marijuana and Tax it, for user-fun and government-profit symbiotically. In Washington, for example, The Associated Press reports that State bureaucrats expect a new $.5 billion revenue source to contribute to an annual budget in the $18 billion range. Oregon and Colorado pols are inhaling similar fumes, which explains why both States now propose their own L&T plans to permit, license, and tax the cultivation, processing, distribution, and retailing of the aromatic crop at each stage in the process from grower-plot to user-purchase. Colorado now wants to be the destination for marijuana tourism (from less enlightened, if you’ll forgive the light-up pun) States. And the three States are now mildly offended by gnarly Congressional proposals to tax the crop (pre-emptively) at the Federal level, for a take which the author, OR Rep. Earl Blumenauer (a little nearly-appropriate Germanic-surname coincidence there) estimates at a smokin’ $20 billion. The proposed excise-tax or import-tariff percentage –50– has some interesting 19th century Vermont (Justin Morrill , specifically) origins.

They were pretty much forgotten until the 1960’s, when a new economics/history discipline acquired the equally new label of “cliometrics” (Clio was the pagan muse of history) and was applied to the previously-received-wisdom history of the Civil War, which, we were all up to then taught in grade school, was the noble effort of Prez 16 to end slavery. As a series of authors ranging from Eugene Genovese in the 60’s to Thomas di Lorenzo in the 2000’s then researched and documented, it wasn’t. A brief quote from Lincoln’s First Inaugural Address in 1861 illustrates: “I have no purpose, directly or indirectly, to interfere with the institution of slavery in the States where it exists.” His major focus was more fiscal and political: to collect the tariffs and taxes on which Federal government then depended, and to use military force to prevent State disobedience and thus to keep the money flow coming in. “The power confided to me will be used to hold, occupy, and possess the property and places belonging to the government, and to collect the duties and imposts, but beyond what is needed for these purposes, there will be no invasion, no using of force against or among the people anywhere,” he pledged. Follow-the-money: technically, he was accurate, because, when Southern States refused to pay, he did order invasion to collect, specifically, the Justin Morrill Tariff of 1860, which called for import tariffs at first up to 36% on manufactured goods (which the more-agrarian South, not the more-industrialized North, would pay) and then up to 48% by 1865. Historic difference: in 1828, with a North-proposed 50% tariff, the South warned of secession, and the Congress then chose to value union over money. Not so in 1861, with Prez 16 starting a four-year war which would cost each side some $3 billion, at a time when Washington’s total annual budget was some $78 million. Present-day Tenth Amendment enthusiasm notwithstanding, a comparable war today over domestic Cannabis Sativa is unlikely. We don’t know how much of the $15 billion spent annually in the “War on Drugs” is allocated to mary-jane deprivation-by-government, but we can guess that a 50% excise tax or import tariff on a product which supposedly will retail for some $250 per ounce (and now, plus-tax) will have the historically-proven Prohibition Effect, in which case, the War on (off-the-books, just like booze in the ‘20’s) Drugs will cost more, not less, and will ultimately prove equally futile. As Morrill and Lincoln knew from their own recent history, and States with customer-punitive cigarette taxes know today, consumer resistance takes various forms, all expensive to suppress.

What government doesn’t know is the tax level at which evasion or resistance emerges: Morrill and Lincoln knew what a 50% bite would do, and they went ahead anyway, for one easily-guessed-at reason: tenure-in-power. Economists, even cliometricians, don’t know either; which explains why Genovese and di Lorenzo could make a statistically-persuasive case for the declining profitability of slavery as agriculture, particularly for plantation-size cropping, began to be more mechanized, and could therefore explain why all Western countries except the US had abandoned it by 1888, without war or occupation; and it explains why Arthur Laffer’s famous Laffer Curve describes only how tax revenues decline as rates grow, and vice versa, without predicting specific percentages for the phenomenon. If contemporary income taxes, individual or corporate, are any guide, a 50% tax on marijuana will lead to a lot of avoidance and evasion. There will be more, not less, smokin’, and there will be a lot more of the less-officially-visible-and -taxable, production, distribution, and consumption. As with the 19th century cotton crop, the single major reason will be technology: the plastic greenhouse and electric grow-lamp are already doing for recreational vegetation what the first patented mechanical two-row harvester did for fabric vegetation starting in 1850, when the 1793 Eli Whitney seed-removal engine (gin) had already achieved widespread use and mechanical planters and cultivators were rapidly appearing. The difference is one of scale, not principle: mechanization-for-productivity enables, indeed almost forces ever-larger field crop operations, but technology-for-convenience enables, indeed encourages small-scale producer-consumer scale of operation. Any high-rise apartment dweller growing arugula on his visible balcony can just as easily raise cannabis in his not-visible TV room.

Should State governments follow the L&T route? Any Libertarian would say yes, for freedom-for-the-individual reasons, and any Progressive would say yes, for revenue-for-the-collective reasons. The question becomes one of practical percentage, not pure principle. Maybe the authors (or human transcribers of Divine Word, if you prefer) of the Bible had it right when they described tithing. In some blue States, maybe Joseph’s prescription for 20% of the crop (in value) going to the Pharaoh will work. And in the blue-est and more “rurally gentrified” States (think VT near the Right Coast and Oregon on the Left Coast) with electorally-dominant upper-income- quintile Patrician-Socialist governance and voting cohorts, an even higher (near-Morrill) number might well be politically feasible. If adopted, it could refute the overall Laffer prescription. That would be gnarly.