Can Marijuana Taxes Pay for Pre-K?

UPDATED 4:44 PM EDT 17 August 2018:  Maryland Gubernatorial candidate Ben Jealous tweets, “When I am governor, we will finally pass universal pre-K in Maryland. How will we pay for it? By legalizing, regulating & taxing Cannabis for adult use.”

My first reaction was that that revenue scheme will happen right after Mexico builds the Wall.

But, with a lot of caveats, taxing marijuana could pay a meaningful fraction of pre-K costs, estimated at “$5,741 per-child per-year, for the lowest level of quality” in 2008 dollars.  (The 2008 estimate was “$9,076 per-child per-year for the highest level of quality.”)

Say pre-K is to cover everyone age 4.  In the United States, the Census Department estimates there are 3,975,252 four-year olds out of 325,719,178 residents, or 1.22 percent of the total population. For the lowest level of care, to provide $5,741 per child-year, you need $70.07 per inhabitant.   (That number ignores the kids who will go to private pre-Ks.)

Colorado and Washington are now bringing in $43 per person in cannabis taxes after long ramp-ups, with lower taxes in their earliest years of legalization.  [UPDATE 21 August 2018:  Candidate Jealous is proposing a higher tax than Colorado, and proposing a more stable weight-based tax. But it will still take years for the legal market to marginalize the black market.]

But interstate competition is not yet a huge threat to those state marijuana revenues.

And the federal government has not usurped the tax base yet.

And some marijuana revenue would be needed to set up a regulatory system – leave aside new revenue needed for drug education and the like.

And the Pew Foundation warns that “sin” taxes are unstable – but mainly because they are unindexed.  (Cannabis revenues based on sales price are even flimsier than the average excise tax.)

Still, Professor Ben Hansen in Oregon says even highest-taxing Washington State is on the undertaxing side of the Laffer curve. [Note: this once said “lowest-taxing,” but WA is highest with 37 percent excise tax plus standard 6.5 percent sales tax.]

As to whether dedicating cannabis revenue to pre-K is the best use, I’ll dodge that question.  That’s what we tax people call “the spending side.”

But if you believe the numbers above, and if you set aside the caveats, cannabis legalization could, after a phase-in, and for a while, bring in around 60 percent of what it takes to fund a pre-K program.  Maybe.


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