“One of California’s many oppressive taxes on the cannabis industry has been laid to rest. Gov. Gavin Newsom has signed into law A.B. 195, which eliminates the state’s cultivation tax.
California’s cultivation tax, unique among the states that have legalized marijuana sales, forced growers to pay the state for each ounce of cannabis grown. This tax was separate from the state’s 15 percent excise tax and state and local sales taxes.
Because the cultivation tax rate was automatically indexed to inflation, it had actually been increasing thanks to the state of the economy. Anybody attempting to legally grow marijuana shouldered a heavy tax burden, which then flowed downstream to consumers, many of whom realized it was cheaper to continue purchasing marijuana on the black market. The end result: two-thirds of marijuana purchases in the Golden State take place through unlicensed vendors. Because it’s so expensive to grow legally, illegal grow operations abound within the state, leading to more police raids, arrests, and prosecutions, not to mention corrupt practices among local governments who have the power to pick and choose which businesses can open up shop legally.”
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“A.B. 195 also bends the knee to the state’s labor unions by reducing the threshold from 20 to 10 employees to require that aspiring licensees enter into a labor peace agreement with a qualifying labor organization. A labor peace agreement is a deal between a business and a labor union that the business will not oppose a unionization effort and the union will not encourage strikes or work stoppages. Making it a mandatory requirement in order to get a license essentially gives labor unions a type of veto power over who can and can’t operate a marijuana business. These agreements also, by their nature, require both sides to waive certain rights under the federal National Labor Relations Act.”
“Senate Majority Leader Chuck Schumer (D–N.Y.) has reportedly brokered a deal with Sen. Joe Manchin (D–W.Va.) to pass a slimmed-down version of President Joe Biden’s spending plan—now to be marketed as an attempt to curb inflation.”
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“The bill will include $370 billion in new spending on climate change initiatives and green energy projects—a linchpin of Biden’s Build Back Better plan through its many, many interactions over the past year—and would dedicate about $300 billion of revenue toward reducing the deficit, which has been Manchin’s top priority.
The bill also reportedly includes a three-year extension of the expanded Affordable Care Act (ACA) subsidies originally passed as a temporary measure during the early days of the COVID-19 pandemic, as well as changes to how federal health insurance programs price prescription drugs. Though pitched as a way to cut costs for households, the extension of those ACA subsidies could actually worsen inflation, as Reason’s Peter Suderman has explained.
The spending and deficit-reduction items will be funded with a series of proposed tax increases. Politico reports that the bill would impose a 15 percent corporate minimum tax, expand the IRS’ enforcement division (a questionable means for generating revenue, it should be noted), and close a commonly used business tax break for carried interest. The tax changes would generate about $739 billion over the next decade, according to The Washington Post.”
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“For today, at least, Joe Manchin seems to have gotten his way.”
“So, the use of tax data by ProPublica and its source to make a policy point isn’t exactly groundbreaking. Some of the agents and politicians who weaponized the IRS in the past intended to make the world a better place by their lights, or at least to hurt only people and organizations they were convinced were bad. And leaks from government agencies often do achieve beneficial ends. Where would we be without Daniel Ellsberg’s copies of the Pentagon Papers, Mark Felt’s role as “Deep Throat” in the Watergate scandal, or Edward Snowden’s revelations of government surveillance?
But leaks from the IRS aren’t war plans, misuses of power, or politicians’ schemes; they’re sensitive, private financial information that we’re forced to surrender to government agents. We have no choice but to fill out our tax forms even though we know that the federal employees receiving our information have a track record of abusing that data for their own ends and to our detriment.”
“When Californians voted to legalize recreational marijuana cultivation and sales back in 2016, the industry ended up saddled with state and local taxes that make it inordinately costly to attempt to sell or buy cannabis legally. As a result, the black market for marijuana still dominates sales in a state where it’s legal to buy it. Industry analysts estimate about $8 billion in black market marijuana sales annually in California—double the amount of marijuana purchased through licensed dispensaries.
The cultivation tax has been consistently eyed by industry analysts as a problem. This particular tax is unique among agricultural products in California, and due to the legislation passed in 2017 to establish tax authorities, it’s regularly adjusted for inflation. As a result, cultivation tax rates actually increased at the start of 2022 despite this big black market problem.
The high cost of attempting to cultivate marijuana has both given cannabis farmers second thoughts and has fostered a whole new drug war as state and local law enforcement officers raid illegal grow operations out in the rural and uninhabited parts of the state. Legislators even passed a new law adding more potential criminal penalties for those arrested for “aiding and abetting” any unlicensed dealers.”
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“It’s good news that Newsom is proposing eliminating the cultivation tax. He may be doing it in the hopes that the state will make more money, but California residents will also benefit from cheaper legal options. And if this makes it easier for people to grow cannabis legally, there will hopefully be fewer raids and enforcement operations in the future.”
“Musk’s income puts him in the top federal income-tax bracket, where income is currently taxed at 37 percent.
According to ProPublica, Musk’s average effective federal income tax rate between 2013 and 2018 was 27 percent.
And the tax on exercising his Tesla stock options was much higher. “Since the options are taxed as an employee benefit or compensation, they will be taxed at top ordinary-income levels, or 37% plus the 3.8% net investment tax,” notes CNBC. “He will also have to pay the 13.3% top tax rate in California since the options were granted and mostly earned while he was a California tax resident. Combined, the state and federal tax rate will be 54.1%.”
Jayapal seems to have reached her “alternative facts” (to use a vintage Trump-administration term) by calculating Musk’s tax rate based on a system she wishes we used rather than the calculation system we actually use.
As it stands, Americans do not pay taxes on unrealized gains—that is, appreciations in investments that exist only on paper. If you own a stock worth $5 per share and its worth increases to $6 per share over the course of a tax year, you have an unrealized gain of $1 per share. You aren’t expected to pay taxes on that gain until you sell your shares—which makes sense, since 1) you don’t actually have that money yet and 2) the stock’s worth could drop again before you sell. Maybe next year the stock decreases to $4 per share.
Jayapal appears to have come up with the alleged 3.27 percent tax rate for Musk by including unrealized gains in the amount she thinks he owes taxes on (while using the standard method for calculating the average income tax rate). However, unrealized gains are, by definition, gains that Musk doesn’t yet have. When he actually realizes the gains, he will be required to pay taxes on them. That’s how it works.”
“Biden isn’t calling his proposal a wealth tax, of course. It’s the “Billionaire Minimum Income Tax,” and it imposes a minimum 20 percent tax on the income of households with more than—oddly—$100 million in wealth. Biden’s proposal is smaller and more pragmatic than the earlier variants from Sens. Bernie Sanders (I–Vt.) and Elizabeth Warren (D–Mass.)—par for the course with Biden. Most notable is that even with implausibly optimistic estimates of the federal government’s ability to collect, the whole mess is supposed to raise an average of a mere $36 billion per year over the next 10 years.
The University of California, Berkeley, economist and Warren adviser Gabriel Zucman estimated what several billionaires would pay under the plan’s 20 percent tax on unrealized gains in illiquid assets, pinning Jeff Bezos’ bill at $35 billion, Warren Buffett’s at $26 billion, and Jim Walton’s at $7 billion.
Anyone who has been paying the slightest bit of attention to federal spending over the last several years knows that figures that begin with b instead of t are now considered rounding errors. The point of this wealth tax is not to raise revenue. It has two rather different aims.
The first is pure political calculus. A floundering, unpopular president seeks to demonstrate a willingness to punish a small, unpopular class of people. A Reuters/Ipsos poll last year found that nearly two-thirds of respondents agree that the very rich should pay more taxes: 64 percent either strongly or somewhat agreed that “the very rich should contribute an extra share of their total wealth each year to support public programs.””
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“The second aim, which has more far-reaching consequences, is to establish the principle that the U.S. government can tax based on wealth at all. If such a tax were to be put into law—and found constitutional by the Supreme Court, which would be no mean feat—it would be the thin end of a very large wedge. Biden’s proposal will spin up the huge bureaucratic, legal, and accounting support systems, public and private, necessary to support the formal tracking of wealth alongside income.
The utility of permitting individuals to accumulate large amounts of money varies from person to person, of course. There are many billionaires whose fortunes are extractive or confiscatory—that is, they have seized a larger slice of an unchanged pie. But in the U.S. in particular, we specialize in billionaires whose fortunes are clearly related to value creation—that is, they have taken a healthy slice of a pie that they also made much larger.
Sanders and others seem determined to conflate these two groups, applying the term oligarchs to, among others, people whose houses have an excessive number of bathrooms, people who build rockets, and people who own Major League Baseball teams.
People do not need to have been wholly self-made to somehow deserve to keep their money. No billionaire is an island, even if many of them own one. In fact, vanishingly few of us have fates that are wholly self-determined.
As a moral matter, if not a legal one, we might ask what the very rich do with their money as a way of evaluating whether they should keep it. As famously rich person Elon Musk recently tweeted: “Working hard to make useful products & services for your fellow humans is deeply morally good.” Many who support wealth taxes seem to hold the belief that the government would use the resources that the very wealthy command toward more valuable ends. Of course, most of the fortunes of billionaires such as the Waltons, or Musk, or Bezos are tied up in the large and extremely productive firms that made them rich in the first place.”
“Right now, if you’re an American who wants to file your taxes without paying any additional fees to a private company or preparer, you have three options (besides limited “simple return” promotions by the big companies).
You can role-play as someone living in the 1970s and print out the 1040 tax form, along with any associated schedules or forms for tax credits and deductions for which you may be eligible, and compute it all by hand, meticulously collating physical copies of your W-2 and 1099 income statements and any other documentation you need.
Your second option is only slightly less tedious: You can use Free File Fillable Forms, a free service implemented by Intuit that simply copies the physical IRS tax forms and makes them “fillable” so you can type in the numbers. It’ll even do some basic math for you. But you still have to manually enter everything, you can’t import PDFs of your W-2 or other statements, and it’s easy to get confused about exactly which forms you’re expected or required to fill out. I’m an IRS-certified tax preparer, and I gave up using the website this year out of frustration.
Your final option is only available if you make $72,000 a year or less. In that case, you’re eligible for a free return on private tax software through the IRS Free File program. But careful: You might get a ton of spam from whatever company you choose trying to upsell you and get you to pay for fancier options. One investigation found that 14 million Americans were charged by companies for Free File returns that should have cost nothing.
The IRS also funds community tax organizations that can file returns for low-income people, but I can say from experience as a volunteer tax preparer that these groups are underfunded and overworked.
This is an unacceptable state of affairs. Americans should not have to choose between these obviously inadequate and half-baked free options for tax filing and paying a private company. Paying taxes is a legal requirement, and it should be possible to easily do it for free. And it just isn’t possible right now; it’s no wonder that over 91 percent of individual returns filed in 2019 were filed through a paid preparer or a private online service. The current system almost forces you to pay for the privilege of paying your taxes.”
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“For years, the government leaned on those two companies to provide free tax services to Americans in need. But the basic problem with relying on private sector companies that provide paid tax services to provide free ones is that they will always have an incentive to make the free service worse and to make the paid one more attractive. That’s been the story the past couple of decades.”
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” The IRS desperately needs to put together an easier-to-use, simpler way for people to file their taxes and access benefits free of charge. Accomplishing that, of course, is easier said than done. The IRS has been underfunded for decades and does not have sufficient in-house technical expertise to build a free file system on its own.”