Tuesday, January 24, 2006

Taxing Illicit Substances: TN Experience

Today's BNA Daily Tax Report contains an interesting little story on Tennessee, which collected $1.7 million this year by taxing illicit drugs and alcohol. Tennessee assessed an excise tax on these substances, but for some reason the drug dealers and moonshiners didn't all pay up. Of the $32 million assessed, they collected only about 5 percent. (Who knows how much passed outside the assessment radar altogether.)

This is not a bad idea. Drug dealers may well have other assets available to pay this tax, which effectively amounts to another penalty. But it also shows that the assessment of a tax is not successful until you collect it. That plays into another story in today's report, in which a member of the President's Advisory Panel on Tax Reform rejects as impractical the suggestion that a national sales tax would replace the income tax. The panel member cited rates of from 34 to 49 percent as being required. I agree that this dog will not hunt. Trying to collect a sales tax at these levels will be tough. In fact, you might ask the Tennessee Revenuers about that!

Best regards.

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