Reaction to Tax Policy Center’s article on cannabis taxes

I think most of today’s article on cannabis taxes by Renu Zaretsky of the Tax Policy Center is just right.  It’s at https://www.taxpolicycenter.org/taxvox/high-hopes-and-altered-states-choices-marijuana-and-tax-revenue-0.  Congratulations.

But as a first reaction, I have a few quibbles:

“will the state be able to avoid the implementation problems Massachusetts has faced? It legalized pot sales in 2016 with the goal of getting its adult-use market off the ground by July 1 of this year. But one month in, the state has licensed only one retailer and no pot shops have opened.”

— true, but Nevada legalized the same day as MA, and got up and running expeditiously.

“sin taxes . . . are not a terribly reliable or stable source of revenue.”

— Well, “Excise taxes are more stable than sales taxes,” https://taxfoundation.org/what-are-excise-taxes-and-why-are-they-going/.  A key reason for any instability in excise tax collections is that states have not indexed quantity-based taxes — as they should.  So should the federal government.

— Taxing marijuana only by price is a recipe for disaster.  The RAND report for Vermont warns that pre-tax prices will collapse, and ad valorem taxes will collapse with them.   https://www.rand.org/pubs/research_reports/RR864.html.  And prices have declined dramatically already in OR, WA, and CO.

​”​a soda tax has a two-part goal: Raise revenue and curb consumption.​ . . But like taxes on liquor, taxes on adult use marijuana are intended to be money trees, pure and simple.​”​

​– no, taxes on liquor ​aim at both goals.  See Phil Cook’s book, https://press.princeton.edu/titles/8501.html​.  The blurb says this:  “higher alcohol excise taxes . . . are effective and underutilized policy tools that can cut abuse.”​  And from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3735171/:  “Six studies evaluated the effects of alcohol price or taxes on non-traffıc deaths. . .  [A]ll six studies found that higher alcohol prices were associated with decreased mortality.”  Traffic deaths, too.

​– for marijuana, the RAND report for Vermont starts the revenue discussion this way:  “Taxes and fees are often thought of primarily as revenue-raising devices, but, in the case of marijuana, the collateral consequences, for good and ill—reduced heavy use and use by minors and reduced risks of export on the one hand and increased risk of in-state black-market activity on the other—could outweigh revenue in importance.​”​

“Maybe it’s best for a state’s policymakers to think of adult-use marijuana tax revenue as ‘found money,’ or tax revenue that could have just as easily been earned by accident. Why not be very frugal with the revenue for the first year or two, and develop policy and programs as if the money largely isn’t there?

— That sounds right!  And so does most of the rest of the document.

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