Struggling States Look To Unorthodox Taxes

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Struggling States Look To Unorthodox Taxes
Published on 02-28-2009 Email To Friend Print Version


Source: NY Times

In his 11 years in the Washington Legislature, Representative Mark Miloscia says he has supported all manner of methods to fill the state’s coffers, including increasing fees on property owners to help the homeless and taxes on alcohol and cigarettes, most of which, he said, passed “without a peep.”

And so it was last month that Mr. Miloscia, a Democrat, decided he might try to “find a new tax source” — pornography.

The response, however, was a turn-off.

“People came down on me like a ton of bricks,” said Mr. Miloscia, who proposed an 18.5 percent sales tax on items like sex toys and adult magazines. “I didn’t quite understand. Apparently porn is right up there with Mom and apple pie.”

Mr. Miloscia’s proposal died at the committee level, but he is far from the only legislator floating unorthodox ideas as more than two-thirds of the states face budget shortfalls.

“The most common phrase you hear from the states is, ‘Everything is on the table,’ ” said Arturo Perez, a fiscal analyst with National Conference of State Legislatures, who predicted the worst financial year for states since the end of World War II.

Nowhere is that more true than California, where Assemblyman Tom Ammiano, a freshman from San Francisco, made a proposal intended to increase revenue, and, no doubt, appetite: legalizing and taxing marijuana, a major — if technically illegal — crop in the state. “We’re all jonesing now for money,” Mr. Ammiano said. “And there’s this enormous industry out there.”

In Nevada, State Senator Bob Coffin said he would introduce legislation to tax the state’s legal brothels, a fee that would be “based on the amount of activities.” And unlike the Washington porn proposal, which drew the ire of the adult entertainment industry, Mr. Coffin’s plan has the backing of the potential taxpayers, in this case brothel owners who employ women as independent contractors.

“I think they figure if they become part of the tax stream, the less vulnerable they will be to some shift in mores,” he said.

Hawaiian legislators were also considering capitalizing on another potential shift in public attitudes when they proposed legalizing same-sex unions, which supporters say could help the slumping tourism trade.

In Massachusetts, meanwhile, state legislators have introduced a proposal to build two resort-style casinos, including one in Boston. A similar push died last year in the State House of Representatives. But Representative Martin J. Walsh, a Dorchester Democrat and co-author of the new casino bill, said a $2 billion budget deficit might have changed some minds.

“Every state in the nation, including Massachusetts, needs to figure out a way of raising revenues,” Mr. Walsh said. “So we need to be creative.”

Scott Pattison, executive director of the National Association of State Budget Officers, said many lawmakers were loath to tap more traditional tax sources during a downturn. “What’s pushing it is this incredible desire to raise revenue,” Mr. Pattison said. “But it’s coupled with the desire not to raise the general and sales and income taxes.”

Whether such proposals can pass is another issue, though each idea has its supporters. Betty Yee, chairwoman of the California Board of Equalization, the state’s tax collector, said that legal marijuana could raise nearly $1 billion per year via a $50-per-ounce fee charged to retailers. An additional $400 million could be raised through sales tax on marijuana sold to buyers.

The law would also establish a smoking age — 21 — effectively putting marijuana in a similar regulatory class as alcohol or tobacco. Marijuana advocates argue that legalization could also decrease pressure on the state’s overburdened prison system and law enforcement officers.

All of which, Ms. Yee said, at least makes the proposal worth talking about in a state with chronic budget problems and a law already on the books allowing the medical use of the drug.

“We know the product is out there, and we know marijuana is available to young people as well, but there’s no regulatory structure in place,” Ms. Yee said. “I think it’s an opportunity to begin the debate.”

Such a debate, of course, does not always favor tax innovators. Several law enforcement groups have already objected to the idea of legal marijuana, which would conflict with federal law.

John Lovell, a lobbyist for several groups of California law enforcement officials, said the plan would create a large, illicit — and thus untaxed — black market, in addition to magnifying substance abuse problems. “The last thing we need is yet another legal substance that is mind-altering,” Mr. Lovell said.

Having taxes on illegal activities, like a seldom-collected tax on marijuana sales in Nevada, also has its drawbacks, said Robert MacCoun, a professor of law and public policy at the University of California, Berkeley, who has researched drug policy.

“It is very hard to tax illegal vices unless one is comfortable with contradiction,” Mr. MacCoun said. “How can you collect the taxes without documenting the behavior? And how can you document the behavior without making an arrest?”

In Washington State, Mr. Miloscia said he had also received criticism from an array of residents and business owners, who accused him of attacking the First Amendment and other sacred institutions with his pornography proposal.

“I had people call up saying their marriages would fall apart,” said Mr. Miloscia, who represents a suburban district between Tacoma and Seattle. “I didn’t know how passionate people are about this stuff.”