In Budget Crunch, Spitzer To Tax Narcotics

ALBANY — It's the perfect tax: Government exacts a big payment without having to fend off lobbyists or wage a political fight.

That's the allure of New York's proposal to tax illegal drugs, just one of the innovative — and sometimes odd — ways states are trying to raise revenue in these increasingly gloomy economic times.

Politicians love to use such methods because they don't have to raise income taxes. But critics say that's also the danger, if long-term problems never get fixed and essentials such as health care and education go wanting.

In his budget proposal to the Legislature last week, Mr. Spitzer also promised $17 million in revenue from a tax on narcotics and other controlled substances. He also proposed redefining little cigars as cigarettes and "hard" lemonade and other flavored alcohol drinks as liquor instead of beer, all of which would increase tax revenue. He also intends to require Internet retailers to collect tax on an estimated $47 million in sales to New Yorkers, who are currently on an honor system to report how much they spend online.

More than a half-dozen states already have a tax on controlled substances. Theoretically, a drug dealer in North Carolina can go to the state revenue office and get a tax stamp for $50 per gram for cocaine over 7 grams (the first 6 grams are tax-free). A moonshiner could get a stamp for $1.28 per gallon of mash. Then the dealer or the moonshiner can walk away — the law prohibits snitching on anyone who buys the stamps — with proof he paid his debt to the tax department.

The idea is that a peddler, even one who sells illegal substances, should pay taxes. But in reality the revenue is only collected after arrests, when dealers are slapped with a tax bill.

"The only folks we have buying those stamps are stamp collectors," a spokeswoman for the North Carolina Department of Revenue, Kim Brooks, said.