How to legalize cannabis

Debating whether to legalize pot is increasingly pointless. Unless there’s an unexpected shock to public opinion, it’s going to happen, and sooner rather than later.

The important debate now is how to legalize it. The results of legalization depend strongly on the details of the post-prohibition tax and regulatory regimes. In the current situation, continued prohibition might be the worst option. Full commercial legalization on the alcohol model might well be the second-worst. But that’s the way we’re heading.

I’m preparing an essay about designing a post-prohibition regime. After the jump is a set of topic sentences and paragraphs for sections of that essay, not yet in a well-defined order. (UPDATE: Numbers inserted to facilitate comments.)

Substantive comments are welcome. Rant and snark will be ruthlessly zapped.

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The billionaire vs. free-riding multimillionaires

Love this account of a pissing match between Warren Buffett and Mitch McConnell.  The Senator from Kentucky has been urging the Sage of Omaha to make voluntary contributions to the Treasury if he felt he was undertaxed.  Buffett has now responded that he’ll match any such contributions made by Republican Senators.

This dialogue makes in a different form an argument offered by that raving lefty Milton Friedman.  Voluntary contributions to reduce poverty (or do any of the other things we rely on the government to do) are insufficient, because everyone would be willing to pay his/her share only if s/he could be sure that everyone else would be willing to pay his/her share.  Otherwise, no dice.

Doubtless McConnell will ignore Buffett’s challenge and continue his nonsensical bluster about Buffett’s freedom to pay extra if he feels “guilty” about his low tax rate.  But the point isn’t, of course, how Buffett feels, or even what he does—it’s what everyone else does.  And if McConnell and his buddies don’t donate to the Treasury, then they are poster children for the free-rider problem—thereby proving Buffett right: philanthropy is not sufficient and taxation is necessary.

H/T the indispensable Rick Cohen at The Nonprofit Quarterly.

The charitable deduction: Beyond “Will not!” “Will so!”

Kudos to my nonprofit consulting colleagues Campbell and Co. for sponsoring a study by the Indiana University Center on Philanthropy to determine the impact on giving of increased marginal tax rates and a cap the charitable-giving deduction.  While some of us have been arguing that both of these moves toward social justice should be supported by the nonprofit community, and others have been arguing that the world will come to an end if every penny of tax savings isn’t afforded to the generous rich, these institutions decided to look for the facts.

The facts–as elegantly stated in a Congressional Research Service study that came to the same conclusion–are these:

The estimated effects of the cap and other elements of the budget package depend on whether the proposals are compared with the current tax rates of 33% and 35% or the rates scheduled for 2011, 36% and 39.6%. Compared with current rules, estimated effects are between one-half a percent and 1% decline in charitable giving . . . . When compared with tax rate provisions in 2011, charitable deductions are estimated to fall by about 1.5% if only the cap is considered, but if income effects from the entire budget package are included contributions actually rise 2.5%.  The relatively modest effects of the proposal arise because (1) the effect of caps on the subsidy value is limited, (2) only a fraction (about 16%) of charitable giving is affected, and (3) because evidence suggests that behavioral responses to changes in subsidies are relatively small.

(Emphasis mine.)  To paraphrase: the tax subsidy isn’t much reduced; that small reduction doesn’t affect 84% of charitable giving; and, in fact, charitable giving isn’t all that tied to tax benefit.

So whether we take the IUPUI findings that charitable giving is likely to decline modestly if these tax reforms are enacted, or the CRS findings that it might actually go up, we should realize that everyone who’s hyperventilating about the impact of these changes on their poor struggling private school, museum or hospital should just take a deep breath.   Given that the reforms will support many of the social programs, environmental protections, educational institutions and health care options the nonprofits themselves seek to provide, it’s about time for the community to stop whining and agree to pony up.