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March 28, 2013

"Buzzkill? Cash-strapped states eye pot tax"

Grow_the_economy_medical_marijuana_voteThe title of this post is the headline of this lengthy new article in Politico.  Here are excerpts:

Now that voters in Colorado and Washington have legalized recreational marijuana use, dope smokers there can light up without the usual paranoid fear that the cops are at the door.  The taxman is another matter.

Cash-starved legislators are seeing dollar signs in dime bags — with talk that a tax on marijuana could pump hundreds of millions or even billions into budgets still reeling from the recession.

“I’ve seen some estimates in the high tens of millions, as much as $100 million for [Colorado],” said Rep. Jared Polis (D-Colo.), who’s pushing a federal legalization in Congress. Money like that could make a big difference, he said — including a “substantial dent in needed school improvements, particularly in poorer districts.”

It’s long been a central argument of the pro-marijuana crowd: Get marijuana out of the hands of dope dealers, tax it like you do cigarettes, then sit back and watch the money pour in.  “We all know where the money from nonmedical marijuana sales is currently going,” said a narrator in a Colorado campaign ad from last year, nodding to Mexico. "It doesn't need to be that way. If we pass Amendment 64, Colorado businesses would profit, and tax revenues would pay for public services and the reconstruction of our schools."

Dale Gieringer, director of California National Organization for the Reform of Marijuana Laws, estimates that legalizing pot would bring in at least $1.2 billion to his state alone. His study assumes a traditional sales tax plus an additional $50 levy per ounce of marijuana, which runs between $280 and $420.  His study argues that legalization could also generate $12 billion to $18 billion in new economic activity for California.

The skeptics’ response: What are you smoking?  “This is not a cash cow that can solve anyone’s fiscal problems,” said Harvard economics professor Jeffrey Miron, a pro-legalization scholar at the libertarian Cato Institute who says Gieringer’s numbers are roughly three times what they should be.  “There is a lot of exaggeration about how big the revenue can be.”

Advocates “want to be allowed to smoke in peace,” Miron said. But, they’re “nervous about making that argument.  They’re afraid that argument won’t win the day, so they have focused in many cases on the revenue side.”  Miron estimates that a nationwide legalization that taxed marijuana like alcohol and tobacco would mean $6.4 billion in new tax revenue — $4.3 billion for Uncle Sam and $2.1 billion for the states.

The estimates are necessarily hazy.  No one knows how much marijuana is bought and sold today, let alone how legalization will affect consumption and prices.  “When you go to legalize, you have reduced risk in producing and distributing the drug.  That’s a real component of the monetary price of marijuana,” said Rosalie Liccardo Pacula, the co-director of the RAND Drug Policy Research Center.

She expects prices to fall by 70 to 85 percent in both Colorado and Washington — and that means taxes, if levied as a percentage of price or value, will also fall considerably.  But she acknowledges that it’s hard to know for sure.  “You have to know more about the structure of the demand curve, which we don’t have any data on because this is black-market; it’s all conjecture,” Liccardo Pacula said.

And even lawmakers looking to cash in know they’ve got to be careful.  Tax marijuana too much and it drives users right back to illegal dealers.  Nobody knows what that price point is. “You want to make sure the black market doesn’t have an advantage over the regulated market because if it does, then the whole concept fails and people will continue to buy marijuana illegally — so there has to be a price advance for the legal market,” Polis said....

Washington state lawmakers are considering tweaks to accompany a voter-approved 25 percent tax on each of the three levels of marijuana production.  In Colorado, lawmakers on a pot legalization panel met Friday to brainstorm how to tax it.  The voter-approved November ballot initiative called for an excise tax of no more than 15 percent but didn’t specify a levy.  Last week, a statewide task force on legalization recommended they levy an excise tax and a sales tax of up to 25 percent.

Colorado’s task force also advised Gov. John Hickenlooper and Colorado’s congressional delegation to push for a federal tax code modification in Washington, D.C., that would allow the state’s marijuana businesses to claim tax deductions. Companies selling illegal substances are currently barred from receiving federal deductions and credits....

The Colorado Center on Law and Policy last August estimated that legalization would bring in $24 million in excise tax revenue, $8.7 million in state sales tax revenue and $14.5 million in local tax revenue.  Washington’s Office of Financial Management estimates that marijuana revenues levied on growers, processors and retailers will bring in just over $565 million in 2017.

A few recent and older related posts: 

March 28, 2013 at 10:51 AM | Permalink

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Comments

A liberal solution -- legalise harm and tax it,
to a liberal problem -- spend like it's not your $.

Posted by: Adamakis | Mar 28, 2013 11:13:44 AM

Greece & Cyprus:
Spend, tax, bailout & confiscate.

Greek America:
'Stay over there, and keep your sordid ways.'

Party in Power in America:
'We need pot proceeds for "needed school improvements"'.--J. Polis (D-Colo.)

Scripture:
και γαρ οτε ημεν προς υμας, τουτο παρηγγελλομεν υμιν, οτι ει τις ου θελει εργαζεσθαι μηδε εσθιετω.
For even when we were with you, this we commanded you, that if any would not work, neither should he eat.--II Thess 3:10

Posted by: Adamakis | Mar 28, 2013 11:28:13 AM

This is a terrible idea. Fight against legalization of marijana. How can I make money growing marijana in Mexico and selling it to your country if everyone can grow their own. Think it through. How will my family and friends afford their haciendas, their sexy men and women, their fast cars. Besides arresting and incarcerating those who grow marijana in your country is good for your economics: creates jobs with the police, with the prison guards, and with those who build prisons. And it is also good for the morality of your country: the church ladies and bible thumpers for whom anything that makes you feel good is by definition bad for your soul.

FIGHT AGAINST LEGALIZATION!

Posted by: Pablo Miranda Escobar | Mar 28, 2013 2:20:48 PM

Given Alexander Hamilton supported a tax on whiskey, perhaps the first comment means classical liberal.

Posted by: Joe | Mar 28, 2013 7:14:36 PM

During what point of Hamilton' s existence was whisky illegal?

Posted by: Adamakis | Mar 30, 2013 9:55:22 PM

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