NEW YORK 'CRACK TAX' PROPOSAL IS DERIDED

Many States Aid Enforcement With Levy on Illicit Drugs

NEW YORK -- If you can't beat it, tax it.

That seems to be the axiom in New York these days, where Gov. Eliot
L. Spitzer (D), struggling to close a $4.4 billion budget gap, has
proposed making drug dealers pay tax on their stashes of illegal
drugs. The new tax would apply to cocaine, heroin and marijuana, and
could be paid with pre-bought "tax stamps" affixed to the bags of dope.

Some critics in the legislature are asking what the governor has been smoking.

"I guess if it moves, he'll tax it," said Republican state Sen.
Martin J. Golden, who dubbed the proposal "the crack tax." Some
opponents said that because cocaine and weed would be subject to the
new levies, it should more aptly be called "the crack-pot tax."

"How do I explain to my 16-year-old son that we're giving a certain
legitimacy to marijuana, cocaine and heroin?" asked Golden, a former
New York City police officer who represents a Brooklyn district. "We
are taxing an illegal substance." He added, "Is prostitution next?"

On the other side of the aisle, some Democrats, too, were stunned by
the plan. "My initial instinct is: I don't understand it," said Bill
Perkins, a state senator from Harlem. "Most of the dealers I'm
familiar with are petty crack dealers -- most of them are crackheads.
They are broke, to say the least. I just don't understand how you
impose a tax" on broke crackheads, he said.

Taxing illegal drugs is more widespread than is generally known. At
least 21 states have some form of tax for illicit drugs, although
some of those laws have been challenged in courts, and others have
fallen into disuse. Almost all the remaining drug-tax laws are used
mainly by local law enforcement agencies as a way to seize drug money
and fund counter-narcotics operations.

The controversial idea grew out of the efforts to fight bootleggers
such as Al Capone during Prohibition -- going after the bootleggers
for unpaid taxes often required a lighter burden of proof than a
criminal prosecution. Taxing illicit drugs gained popularity during
the 1980s and early 1990s, when prosecutors and law enforcement
authorities were pushing for mandatory sentences and other measures
to signal a crackdown on drugs and drug use.

"It was a way of getting tougher on criminals," said Joseph D.
Henchman, tax counsel for the Tax Foundation, a Washington-based
educational group. "It kind of boggles my mind. If you want to get
tougher on drug dealers, increase the penalties."

"It's just weird to put an excise tax on an illegal substance,"
Henchman said. "When you tax something, it's a way for the government
to say you can have it, but we want a piece of it. . . . It's sending
a mixed signal."

Last September, a state appeals court ruled a drug law in Tennessee
unconstitutional, saying that an illegal substance could not be
taxed. In Massachusetts, that state's supreme court in 1998 ruled a
drug tax was an unconstitutional form of "double jeopardy," so it is
not used, although it remains on the books, according to the revenue
department in Boston.

Allen St. Pierre, executive director of NORML, the National
Organization for the Reform of Marijuana Laws, called the drug tax "a
wacky idea. It's a quintessential example of the absurdity of the war
on some drugs."

St. Pierre called it "bizarre, to say the least." Taxing drug
dealers, and especially users, he said, "is like squeezing blood from a rock."

The Federation of Tax Administrators represents the tax collectors
for the 50 states and the District, and Verenda Smith, the group's
government affairs associate, called the drug tax an effective law
enforcement tool. "The whole thing is about law enforcement," Smith said.

Most states with the law sell stamps that drug dealers can buy in
advance, like what Spitzer is proposing. Because no drug dealers are
known to buy the stamps and pay their tax in advance, the tax is
usually levied after they are caught.

Some states have designed distinctive drug stamps, often depicting a
marijuana leaf. Nebraska's drug stamp depicts a rolled joint crossed
with a syringe in front of a skull and what appears to be a
headstone, with the label "R.I.P."

"People do walk in and buy the stamps. We assume they are all stamp
collectors," Smith said. "I believe only one person out of 50,000 has
ever been a drug dealer." To avoid a court challenge, she said, the
law has to allow anyone to buy the stamps without showing
identification or alerting authorities that he or she is a drug dealer.

In many Southern states, such as North Carolina, the illicit
substances tax is also applied to moonshine.

In New York, Spitzer proposed the drug tax in his 2008-09 budget as a
way to deal with a projected shortfall, and in a memo said taxing
drug dealers would raise $13 million in the coming fiscal year. The
governor's office said the bill would contain strict secrecy
requirements, so drug dealers who paid their taxes would not be
incriminating themselves.

A tax stamp for a gram of marijuana would cost $3.50, and $200 for a
gram of cocaine, "whether pure or diluted," according to the
governor's proposal.

When Robert Megna, the New York tax commissioner, went to push the
tax before a hearing at the state assembly, he was grilled by
assembly member Jeffrion L. Aubry of Queens.

Aubry said he is concerned about figures compiled by a Queens College
sociology professor, showing that between 1997 and 2006, about
360,000 New Yorkers were arrested for marijuana possession -- usually
small amounts in a single joint, or nickel or dime bags -- and 85
percent of those arrested were black or Hispanic. Most of those
received probation.

But Aubrey, in an interview, said he is concerned that adding a new
tax would create more costs to the city by forcing police to impose a
new charge: tax evasion.

"Our prison population has been declining," Aubry said. "This runs
counter to that. . . . The poor, and minorities, are the ones who end
up arrested, convicted and sentenced." Aubry vowed to fight what he
called a "boneheaded" proposal.

Megna replied, "It's not our intent to burden certain portions of the
population."

In the current anti-tax environment, politicians in states such as
New York are reluctant to raise taxes more on average taxpayers, and
prefer to cover budget shortfalls through what experts call "sin
taxes," on products such as cigarettes and alcohol, or on activities
such as visiting strip clubs. Texas, for example, recently introduced
a levy on strip clubs known as "the pole tax."

New York, for its part, already taxes lap dances at strip clubs, but
only if they are performed in the club's V.I.P. room, not on the
couches in the main area of the club.

Strippers, like drug dealers, normally are not known to complain
about more taxes. "I guess they didn't expect the drug dealers of New
York to rise up and join the anti-tax movement," Aubry said.