Eliot Spitzer’s Crack Tax

Long before the jokes about Eliot Spitzer as sex dope, there were just the dope jokes about him. In response to one of the former governor’s ideas—a tax on drug dealers—his critics wondered whether he was smoking something funny. Now, a week after Hookergate, Spitzer’s “crack tax” is among the casualties of his dramatic downfall.

Back in January, Spitzer proposed a tax on illegal drugs as part of the state’s 2008-9 budget. The “crack tax” would have required drug dealers to purchase tax stamps—which they would do confidentially. Theoretically, the dealers would affix the stamps to their packages of marijuana, cocaine, and heroin as proof that taxes on the goods had been paid. Although the idea sounds absurd, 29 other states have passed similar legislation over the years, with varying degrees of success: Some states have made millions enforcing their drug taxes, while others have had the tax laws overturned in court.

In reality, states created the tax stamps to justify their confiscation of money and property when they bust dealers. Besides charging people with selling drugs, prosecutors use tax laws to impoverish them. (Decades ago, the feds hassled gangster Al Capone over taxes.) So if you’re going to bust dealers for not paying taxes, there needs to be a law requiring them to pay taxes. Hence the stamps.

“All it really is, is another angle for prosecuting people involved with drugs, another count you can add to the indictment,” says Ruth Liebesman Martiniuk, the New York legal director of the National Organization for the Reform of Marijuana Laws (NORML). “It’s kind of a backhanded way, but it’s the way they got Capone.” For some state officials, it’s the perfect solution. “This way, if the criminal prosecution is not successful, we can still collect the revenue,” says the Budget Division’s Jeffrey Gordon.

Spitzer’s budget people estimated that the state could take in $17 million a year by collecting back taxes and fines from drug dealers once they’re busted. Based on 2005 drug-seizure numbers, department officials say, about $9 million in fines would have come from pot dealers and $8 million from those selling crack, heroin, or the like.

The proposal didn’t have many supporters outside the statehouse, and Spitzer never got the chance to try to bully it through. The day after “Mr. Clean” was outed as a hookerphile, the governor was out, and the state senate quickly passed a budget resolution that specifically rejected the crack tax. It’s unlikely that the new governor will argue the point.

Mourning the loss are the nation’s hardcore stamp collectors. NYU alum Robert Henak, now a lawyer in Milwaukee, says he was all in favor of the “crack tax.” Why? “Because I’d like a new stamp,” he says. Henak is only half-serious: He collects state drug-tax stamps, but he doesn’t buy into the logic behind them. “The tax is really silly and counterproductive,” he says. “It is just a fad that sounds good but doesn’t really solve the problem.”

Henak would know: He helped overturn Wisconsin’s drug-tax law in 1997, arguing that it was a violation of the Fifth Amendment because the act of buying a tax stamp amounted to self-incrimination.

In fact, that’s how he became a collector, he says. The case piqued his interest in the stamps—he calls them “small examples of political absurdity”—and he now boasts a collection of stamps from 24 states. Illustrated with images of grim reapers, joints, and syringes, the stamps have become prized oddities on eBay, and Henak’s collection has even been featured in Playboy—where you also might see Spitzer’s hooker Ashley any day now.