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Federal tax for a business that doesn't exist yet: pot

By GENE JOHNSON Associated Press

Publication: The Day

Published February 05. 2013 4:20PM

Seattle - An effort is building in Congress to change U.S. marijuana laws, including moves to legalize the industrial production of hemp and establish a hefty federal pot tax.

While passage this year could be a long shot, lawmakers from both parties have been quietly working on several bills, the first of which Democratic Reps. Earl Blumenauer of Oregon and Jared Polis of Colorado plan to introduce Tuesday, Blumenauer told The Associated Press.

Polis' measure would regulate marijuana the way the federal government handles alcohol: In states that legalize pot, growers would have to obtain a federal permit. Oversight of marijuana would be removed from the Drug Enforcement Administration and given to the newly renamed Bureau of Alcohol, Tobacco, Marijuana and Firearms, and it would remain illegal to bring marijuana from a state where it's legal to one where it isn't.

The bill is based on a legalization measure previously pushed by former Reps. Barney Frank of Massachusetts and Ron Paul of Texas.

Blumenauer's bill would create a federal marijuana excise tax of 50 percent on the "first sale" of marijuana - typically, from a grower to a processor or retailer. It also would tax pot producers or importers $1,000 annually and other marijuana businesses $500.

His office said Monday it doesn't yet have an estimate of how much the taxes might bring in. But a policy paper Blumenauer and Polis are releasing this week suggests, based on admittedly vague estimates, that a federal tax of $50 per ounce could raise $20 billion a year. They call for directing the money to law enforcement, substance abuse treatment and the national debt.

Last fall's votes in Colorado and Washington state to legalize recreational marijuana should push Congress to end the 75-year federal pot prohibition, Blumenauer said.

Washington state officials have estimated that its legal marijuana market could bring in about half a billion dollars a year in state taxes.

"You folks in Washington and my friends in Colorado really upset the apple cart," Blumenauer said. "We're still arresting two-thirds of a million people for use of a substance that a majority feel should be legal. ... It's past time for us to step in and try to sort this stuff out."

Advocates who are working with the lawmakers acknowledge it could take years for any changes to get through Congress, but they're encouraged by recent developments. Senate Minority Leader Mitch McConnell last week came out in support of efforts to legalize hemp in his home state of Kentucky, and U.S. Rep. Dana Rohrabacher, R-Calif., is expected to introduce legislation allowing states to set their own policy on marijuana.

Senate Judiciary Chairman Patrick Leahy, D-Vt., has indicated he plans to hold a hearing on the conflict between state and federal marijuana laws and has urged an end to federal "mandatory minimum" sentences that lead to long prison stints for drug crimes.

"We're seeing enormous political momentum to undo the drug war failings of the past 40 years," said Bill Piper, director of national affairs for the Drug Policy Alliance, who has been working with lawmakers on marijuana-related bills. "For the first time, the wind is behind our back."

The Justice Department hasn't said how it plans to respond to the votes in Washington and Colorado. It could sue to block the states from issuing licenses to marijuana growers, processors and retail stores, on the grounds that doing so would conflict with federal drug law.

Blumenauer and Polis' paper urges a number of changes, including altering tax codes to let marijuana dispensaries deduct business expenses on federal taxes, and making it easier for marijuana-related businesses to get bank accounts. Many operate on a cash basis because federally insured banks won't work with them, they noted.

Blumenauer said he expects to introduce the tax-code legislation as well as a bill that would reschedule marijuana under the Controlled Substances Act, allowing states to enact medical marijuana laws without fear that federal authorities will continue raiding dispensaries or prosecuting providers.

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