Regressivity of cannabis taxes is a non-problem

Regressivity of cannabis taxes is likely a non-problem, for two distinct reasons.

  1. In the long run, cannabis prices after and including tax are very likely to be LOWER after legalization than untaxed black market prices before legalization.  Consumers will pay less, not more.
  1. This second reason is bigger picture.  “Surprisingly, the progressivity of a tax system’s rate structure is negatively correlated with the reduction in inequality a country achieves. ” (Kleinbard, We Are Better Than This: How Government Should Spend Our Money, Oxford University Press, 2014, p. 362).  Kleinbard says, reasonably enough, that a fiscal system should be judged as a whole, not piece by piece. And although you might try to isolate the tax feature of a marijuana legalization plan and label it regressive, countries that depend on regressive taxes, like a Value Added Tax, have less inequality than the United States. Think Europe.  And if revenue from cannabis goes for uses that decrease inequality, which might, in the long run, include treatment, health care programs, and youth prevention, all of which might help people function in the economy, it doesn’t seem fair to consider only the tax without considering the use of the tax revenue.

All this come from RAND’s Insights for Vermont, http://www.rand.org/pubs/research_reports/RR864.html, page 78, footnote 5.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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