Tag Archives: Consumption Tax

Liberty With A Price Tag Isn’t Liberty. Colorado’s Legal Marijuana Isn’t As Good As You Think

Recently it was announced that Colorado’s overwhelmingly successful venture into legalizing recreational marijuana has generated so much tax revenue, that the people are owed a refund.

Before I condemn them on this tax, I must at least give them all due credit for having a clause in their state constitution that limits the amount of tax revenue that Colorado is allowed to collect before it must refund a portion to the people. It’s referred to as the Taxpayer Bill of Rights (TaBOR), and it’s a very pro-liberty thing to do.

Sadly, Colorado Republicans and Democrats alike are now upset they may have to give some of this money back however. I understand the Democrats being upset, they’ve never met a taxpayer dollar they didn’t genuinely believe they could spend better than the person who earned it. But it’s sad that the Colorado Republicans, the party that’s supposed to be about limited government, are somehow upset with this too.

Forget all of that though, because there is a much deeper issue here. This Colorado legal-pot situation is not as libertarian-friendly as one might think.

Marijuana Harvest
Marijuana Harvest

Colorado was smart enough to embrace the science that shows that marijuana is a fairly benign drug that is often less risky in its consumption than alcohol. They were also non-hypocritical enough to know that allowing alcohol while not allowing marijuana made little sense—kudos to them on both counts. But that’s where the liberty segment of their new pot-friendly legislation ends.

Sadly, politicians love new revenue streams more than I love my mom. Because the legislators in Colorado decided that instead of just giving people more freedom to choose what they put in their body, they would give them a way to do it prosecution-free, if and only if, they paid an additional tax over and above the normal sales tax, which exceeds 25% when all of them are added together.

Knowing this would generate a significant amount of tax revenue was certainly part of the equation, if not the impetus for legalization, when the one and only reason should have been that in a free country (or state in this case), it should have never been illegal in the first place.

What Colorado is essentially doing is no different from the sugary drink tax in Berkeley, California, cigarette taxes across the country, or any other tax on a product over and above the standard sales tax. They are using the tax system to encourage behavior like a backwards carrot on a stick. No rights are being protected, nor is any governmental service being offered.

Berkeley Soda Tax
Berkeley Soda Tax

As someone who supports a consumption tax system like the FairTax.org proposal, one might think that I and other libertarians would support a marijuana tax, but it’s very anti-libertarian on multiple fronts.

When sin taxes such as these are passed, it assumes that government has an interest in what you do to yourself and should penalize you for what they have determined is bad behavior. But government’s duty is to protect you from others who would harm you, not from yourself. They have no right to tell you how to live your life or be the arbiter of what is good behavior. Are you comfortable letting them tell you what shows you should watch or what kind of mate you should choose?

The reason to support a consumption tax is that it’s effectively a fee for services rendered. If government builds infrastructure, and enforces contracts between enterprises which allow all of these products to freely come to market, it’s a fair way to charge people for that government service. But what service is Colorado providing for the marijuana tax?

For instance, I can fairly argue it’s okay to add a diesel/gasoline tax, because that money then pays for roads. You’re being charged a fee for services rendered. However, there is no additional service Colorado is providing with their multitude of tacked on taxes to marijuana, it’s simply a revenue stream that goes into the state’s general fund, and the oh-so-common “It will go towards helping schools” argument is also part of the equation.ColoradoMarijuanaTax.thumbnail[1]

I’ll set aside my argument that there shouldn’t be public schools in the first place, but why exactly is a pot smoker disproportionately responsible for educating Colorado children or paying for other non pot-related issues?

If we love liberty, we should never support a tax that cannot be directly attributed to the item being taxed as a fee for a service government is providing. With government, we are often forced to accept compromise to appease the statist-minded voters and politicians, and I’m sure Colorado’s marijuana tax is no different, but we are most certainly not to a point where we can call Colorado’s legal marijuana system a victory for libertarianism.

It’s no more of a victory than if a football team were losing 70-0 and in the closing seconds scored a field goal to avoid getting blown out. Sure it feels good to put points on the board, but you still lost in the end.

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The Real Cost Of Taxes

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

Government, in order to do the people’s business, must pay for itself. Currently, we achieve this by a myriad of taxes such as:

  • Income taxes, which I would argue are a penalty for success.
  • Sin taxes (or social engineering taxes) on things like alcohol and tobacco, that are over and above normal sales tax,  which are designed to deincentivize people to buy these products because somehow, that’s government’s business?
  • Estate taxes, because now that you’re dead, you don’t need that money, and you’re family certainly doesn’t deserve it more than government.
  • Fuel taxes like those on gasoline which also go over and above normal sales, which are designed to drive certain markets in favor of others.

    Gas Pump Tax Label
    Gas Pump Tax Label
  • Property taxes, because just buying the property shouldn’t make it yours to keep.

This list is by no means complete.

In a previous post, I wrote that I supported a consumption tax like that proposed at Fairtax.org. Something that is simple and easy to understand for people and corporations alike, then get rid of all this other nonsense. After that, use fees as much as possible, such as when you buy a driver’s license or plates to shift government income to fees for what they do instead of taxing everyone for something not everyone benefits from. But why do I believe this is important?fairtax[1]

Because government has its tentacles in everything, it can often hide disturbing practices in an over-complicated tax code and regulatory structure.

For instance; subsidies for an industry that can clearly survive on its own which are conveniently hidden in tax write-offs. Or a federal law that serves one locality greater than another. Why should people in Florida pay for a bridge in California for instance?

Between the taxes one is required to pay, the write-offs one needs to know about in order to keep as much as possible of what they’ve earned, and the regulations they must abide by, this creates expenses that destroy businesses, stress households, and wreak havoc on our economy.

As a former small business owner, I can tell you that the idea of borrowing/investing nearly $100k was infinitely scary. But at the early stages of 2007, the economy seemed quite strong, and I decided to go for it. Bad luck for me, the economy collapsed within months after I started and long before I was stable enough to weather such a tough downturn. Sadly, my business failed within 2-1/2 years as a result.

So what makes a business fail? We can debate about certain principles, but the one inarguable truth is that their income was lower than their expenses, and this was my experience.

The problem with our tax structure isn’t just the taxes themselves, it’s the complexity with which it is administered that add additional costs over and above the taxes themselves. If I didn’t have to file for licenses and worry about massive regulatory compliance issues, I could have saved myself a lawyer’s fee. If I didn’t have a myriad of tax codes and write-offs to deal with, maybe I don’t need to hire an accountant.

On a personal level, you and I pay taxes, but then at the end of the year, many of us are forced to hire an accountant for this as well, and this is in essence, a tax on a tax.

These are thousands of dollars I’m talking about, and I was the sole employee of my tiny corporation.

Would it had saved me? Maybe not. But I was close to surviving, and coupled with a lower tax burden, there’s a good chance it very well could have.

A Fortune 500 sized company however spends millions on lawyers and accountants for compliance and tax purposes. This is money that could be used to hire other people and produce more products at a lower cost. While I’m not insulting tax accountants and lawyers as if they aren’t jobs in their own right, both are noble professions, but the fact is they don’t produce anything for the business.By-The-Book-Taxes-CT-1[1]

If my company makes widgets, the lawyers and tax accountants do nothing to increase my widget output nor even assist with customer service or sales of them. They simply make sure I understand an overcomplicated legal structure and tax code that if done properly by government, I would understand without their help.

As always, I understand that the intentions from Democrats and Republicans alike are often altruistic when they pass laws, but laws were supposed to be about one thing; protecting rights. Not social engineering or market influence.

I should generally be entrusted to understand that throughout the course of doing business, I am or am not infringing on someone’s rights without needing a lawyer and an accountant to explain it to me.

A simplified tax code and a federal register that hasn’t ballooned from a mere 11 pages in 1935 when it was the Federal Register Act was enacted, to an astounding 79,435 pages in 2008 would do wonders to help reduce the intimidation of starting a small business, and help those struggling to make it work on a shoe-string budget. I would bet 99% of these laws violate the tenth amendment alone.

Can we really call ourselves a free nation with 80,000 pages of laws on the federal books? I don’t know about you, but the thought of it doesn’t make me feel very free. I suspect I’m a criminal already and don’t even know it.

Taxes should be a fee for services rendered, not a penalty for success.

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

With the hullabaloo about the fiscal cliff and April 15th on its way, it’s time again to think about taxes. I know you would rather slide down a fire pole covered in razor blades and battery acid than think about Uncle Sam’s yearly dues, but we can be the instruments of change. If liberty minded people can inject a little logic and reason into the somewhat socialist-minded which currently dominate our media, Senate, White House, and any number of voting blocks, change can happen.Uncle Sam

So with that in mind, let’s talk first about what taxes are for. The government is an extension of the people here in the United States. Everything our government does should be a service that you and I have elected them to do at our behest. We pay these folks for services rendered through taxes levied.

In the private sector, when we hire someone to do a job, they name their price, and we pay it. However, let me provide an example of what they don’t say:

How much do you make? Oh, you make $200,000 a year? Well in that case, I’m going to charge you $10,000. I know I only charged your neighbor $5,000, but he only makes $100,000 a year. I’m sure you understand.

I know that exchange sounded ridiculous because it is. But imagine the next person you hire to perform a service for you asking how much you make before giving their estimate. If you tell me that your response would be remotely different from, “none of your damn business” I’m going to call you a liar. Yet this is exactly how our tax system works, and we tolerate it year after year.

We the people must demand a complete overhaul to our tax system based on consumption, not income. Income taxes, property taxes, estate taxes, and capital gains taxes should be constitutionally abolished via an amendment, and all taxes should be attained by only two methods. A fee for services, such as when we buy license plates, or a consumption tax on commerce. Since the government provides infrastructure and protection so that we can conduct such commerce; that’s a more fair method.

The reasons this makes far more logical sense are numerous, so I’ll do my best to enumerate a few:

First, an income tax is a penalty for success, whereas a consumption tax is a fee for services rendered. In America, the land of opportunity, we shouldn’t be penalizing people for being successful, we should be encouraging it.

The Fair Tax is probably the most comprehensive proposal along these lines, but I haven’t read it all completely and am not necessarily endorsing it; however, it certainly seems better than the monstrosity we have now.fairtax[1]

Those who feel it would raise taxes on the poor may not be aware that they proposed a prebate to cover the taxes that would be applied to the basic needs of every American, so that in effect, your first $3,500 in taxes for instance (A made up number for purposes of this debate) would be paid for you up front. If you decide to spend more, those taxes are your responsibility.

I think we’ve all seen examples of wasteful spending from those who shouldn’t be doing so. Have you seen someone who has $2,000 wheels and a $5,000 stereo in a $500 car, yet never seems to have a money for the things that matter. I had one such example ask me for $5 at a convenience store.Random Hoopty

Second, those with money would still pay a higher tax rate because they buy more goods and conduct more commerce. It would effectively be a progressive system as it is currently; except now, there wouldn’t be write-offs and loopholes to take advantage of. Businesses would pay taxes on the products they buy, as well as consumers. Everyone benefiting from government services, is now contributing their equitable share, without anyone getting taxed twice.

Third, The IRS is massively reduced as a result, no more stress of getting your taxes done before tax day and what you might owe, and no more worrying about when and how you have to pay taxes.

For instance, if a family member helps you financially by giving you money, you won’t have to worry about reporting that. If someone is gifted or wins an expensive item like a car or a home makeover, they no longer have to sell that car or home just to pay the income taxes on it. Sadly, these beneficiaries of goodwill and fortune often end up losing all they have won or been given because of the income taxes owed. I’d like to think that reasonable people find this appalling.

Plue, there are many instances were you are expected to know what and when to pay that many are either ignorant of, or purposefully don’t report, in order to cheat.

Fourth, Imagine getting all of your paycheck instead of the 1/2 – 2/3 you get now, and then you decide what you’ll pay in taxes by how much you spend on goods and services out of that paycheck. If it was a bad week, you only buy the essentials, and thus you pay no tax, presuming we wouldn’t levy food and water.

The last point I’d like to make, which could be the most important of all—no more freeloaders. We all know that there are citizens and non-citizens who often work under the table or are involved in criminal enterprise and thus pay no income taxes. All of a sudden, the people gaming the system and not putting their two cents in (literally), will be compelled to pay their share for the services the government provides them too.

Sadly Republicans and Democrats alike seem to dismiss such a system. Libertarianism is catching on in the United States though, and this was part of their platform. Sharing this story and information about the Fair Tax on Twitter, Facebook, et al., will hopefully help to get a consumption and fee based tax system to take hold in the marketplace of ideas; furthering the national discussion. This should not be a partisan issue since the rate and prebates can be set at whatever number the current legislature decides.

However, it is a radical change; thus, a tough row to hoe. But if we passed the radical overhaul to our healthcare system, known as the Affordable Care Act (Obamacare), we can certainly achieve change as logical as a consumption tax if clear thinking Americans make some noise.