Illegal weed market? It’s the impunity, stupid.

It’s the impunity, stupid.

The marijuana industry says taxes keep the illegal market alive.  At the margin, maybe taxes drive some transactions away from legal sellers.  

But analogy to illegal logging in the rain forest of the Brazilian Amazon offers another answer, explained by the Wall Street Journal.  

The success of legal, licensed loggers, operating “concessions” with constraints designed for sustainability, “depends on the government’s ability to crack down on illegal logging.  Since they pay no taxes and make no effort to protect certain species or invest in restoration, illegal loggers can charge $431 per square meter of lumber, compared with $1,511 per square meter of legally logged timber, concession operators said.  ‘It is like having a regular, taxpaying shop competing with lots of tax-free peddlers right in front of your door,’ said Jonas Perutti, owner of Lumbering Industrial Madeflona Ltda., which also operates concessions in the Amazon.”

. . . 

“Illegal logging is thriving in part because the Bolsonaro administration has cut environmental protection budgets. Here in Rondônia, a state the size of Michigan, there is only about one patrol agent from the Ibama environmental agency per 540 square miles. ‘What makes these loggers continue in the forest? It’s the certainty of impunity,’ said a government official.” 

California’s illegal market in retail marijuana is not due to taxes, whose burden is lower than that in Washington and maybe comparable to that in Colorado.  A lack of licensesand an overhang of supply from entrenched growers are not helping.  But a key factor is the open and flagrant operation of illegal storefronts, whose operators keep dodging what law enforcement there is. Legitimate sellers are frustrated by lack of enforcement.

Look, you’ll never eliminate the illegal market.  You’ll only marginalize it.  The optimal amount of crime is not zero.  But a knee-jerk blaming of taxes doesn’t complete the analysis.

How much revenue can law enforcement bring?  Here’s an old take:

“The President’s budget for fiscal year 1991, for example, proposes adding 3,600 staff to examine more tax returns, collect more unpaid taxes, and do other tax enforcement jobs. IRS estimated that with this additional staff, it would generate about $500 million of additional revenue in 1991 and about $6.5 billion by the end of fiscal year 1995.” (GAO report questioning those numbers and suggesting other methodologies).

That old take gives little about quantification today — how much enforcement could help with marijuana tax collections, or with protecting the Amazonian rain forest.  But enforcement should not be overlooked.


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