WA marijuana tax cut proposal

My friend Dale Gieringer sends this article (noticed by Brett Stone) about a proposal to cut Washington’s marijuana tax.  The rationale is the ongoing strength of the black market.

I don’t know the facts on the ground about the black market, but I might be for this kind tax cut – IF IT’S SUNSETTED – that is, if the tax rate went back up automatically after a set period. As the sunset ends, if the legislature thinks the rate is still too high AT THAT TIME, it can keep the rate low, by extending the lower rate.  (I was recently accused of being “anti-marijuana,” but I’m an analyst rather than an advocate.   I do see cannabis as a revenue source, and it turns out that I’m mostly looking to get more revenue rather than less, so I can see how someone would think I’m anti-.  So it’s comforting to see a tax cut I might support.)

The Economist just published this:

If, starved of sales, the black market shrinks beyond a point of no return, taxes could later go up, restoring the deterrent. There is precedent for this. When the prohibition of alcohol ended in 1933, Joseph Choate of America’s Federal Alcohol Control Administration recommended “keeping the tax burden on legal alcoholic beverages comparatively low in the earlier post-prohibition period in order to permit the legal industry to offer more severe competition to its illegal competitor.” After three years, he estimated, with the mob “driven from business, the tax burden could be gradually increased.” And so it was (see chart 3).

And I’d like to know more about the revenue number. The estimate shows that a rate cute from 37 percent to 25 (leaving the rate at 68 percent of what it was) leaves revenue at 68 percent of what it was. I would think that some sales would shift from the black market to the legal market, so the revenue after the cut would be more than 68 percent of pre-cut sales.  I don’t know how much would shift, but some.  And with Oregon nearby taxing at 20 percent or so, some who purchase there might come home.

Excerpts of the article below. The full article is much longer.

http://www.northkitsapherald.com/news/368459871.html

 

Legislator says black-market marijuana still cheaper than legal pot

 

Today at 6:39AM

By LaVENDRICK SMITH

WNPA Olympia News Bureau

 

OLYMPIA — In the state’s battle to eliminate the illegal sale of marijuana, one lawmaker’s proposal to reduce the tax of legal recreational marijuana may have to wait.

 

House Bill 2347 would reduce the excise tax on marijuana sales from 37 to 25 percent, in an effort to help make the prices more competitive with their black-market counterparts, said the bill’s primary sponsor Rep. Christopher Hurst, D-Enumclaw.

 

Hurst and proponents of the bill say a reduced tax would be one of the most important ways of eliminating the black-market sales of marijuana, which Hurst said still makes up 65 to 75 percent of sales in the state.

 

“We can’t get there if we price ourselves so much higher than the illicit market,” he said. “The criminals love the tax rate being high, because they don’t pay it, and it makes it so the legal people can’t compete with them.”

 

His proposal failed to pass the House Finance Committee by the Legislature’s cutoff point on Feb. 9. However, Hurst says it could still be worked in as an amendment to the budget, though he hasn’t decided whether to pursue that course.

 

Hurst said the current tax on pot is too high and punishes licensed retailers who are playing by the rules of Initiative 502, which voters approved in 2012 to allow the production, sale and recreational use of marijuana by adults in Washington.

 

The proposal came a year after the Legislature eliminated individual taxes between the chains of producers, processors and retailers, and implemented a one-time tax on the final product at retail.

 

K.C. Franks, owner of Stash, a pot shop in Seattle, said he supports reducing the taxes on marijuana sold in his store.

 

Some critics worried that reducing the tax would’ve done more harm for the industry and state than good, by leading to a decrease in revenue.

 

The fiscal impact estimate for the bill was a projected loss of $87 million in the upcoming fiscal year, with about $268 million in revenue expected with a 37 percent tax, as opposed to $181 million with a 25 percent tax.

 

“Hurst and proponents of the bill say the fiscal impact was overblown and didn’t account for the people who would choose to buy legal marijuana because of the cheaper prices. Proponents say customers would rather purchase from stores with competitive prices, where they can feel safer than on the streets and purchase products of higher quality.

 

“The people who’ve been purchasing illegally and not paying any tax are now going to come to a proper place that’s licensed,” Franks said. “What [the state] may lose in the percentage per sale, they’re going to increase revenue by having more people from the black market come into the fair market.”

 

(This story is part of a series of news reports from state legislative session provided through a reporting internship sponsored by the Washington Newspaper Publishers Association Foundation. Reach reporter LaVendrick Smith at lavendricksmith@gmail.com; follow him on Twitter: @LaVendrickS)

 

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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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