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Will marijuana taxes ease our economic woes?
I live in California, and Prop 19 debate is everywhere. Do you think that the tax generated from the legalized sale of cannabis will actually help the economy? What are the realistic economic implications of this proposition?
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2 Answers
If you look at the issue in pure economic terms, California's largest agricultural sector could generate significant revenues for the state. Right now, marijuana is totally unregulated and untaxed. It's a $14B a year industry so even some of the more modest proposals out there would generate $1B+ in taxes and fees for the state. Tom Ammiano's proposal would levy reasonable fees on growers, wholesalers, and retailers that would yield $1.3B a year in revenue. Proposals like this one presume legalization, but that's ok given that cannabis is effectively legal in the state.
There will be costs to be sure. Alcohol sales generate tax revenues, but alcohol costs society as a whole much more than the tax revenues it generate - some estimates peg the costs at 4.5x tax revenues. I'm not saying that marijuana is as harmful as alcohol but there are health costs that are worth measuring.
Regardless of the numbers, there is a powerful political dynamic behind the debate. If marijuana remains illegal at the federal level, growers and retailers have a strong incentive to not pay taxes as paying taxes would provide federal investigators with conclusive proof of a crime. So, in my opinion, the numbers look big on paper, but you should assume that collection rates on any taxes would be incredibly low.
The cannabis market has existed for longer than you and I have been around. It has weathered intense market conditions and still remains today in its underground "black market" status. The idea that one day everyone will go to the drug store and simply purchase it legally and willingly pay tax may be a bit of a stretch. Much like the mafia selling boosted cigarettes out of a trunk, or those same cigarettes in the market place strategically placed at docks just off cruise ships, cannabis will probably still continue to sell underground at its present duty-free status. If there is one thing that is constant it is that no one will want to pay more than they have to, all other things constant. The only thing that will happen from Proposition 19, from what I understand, is the Government will get a very, very small piece of the action, and only from those consumers who are willing to pay extra toward taxes on the goods. I am not sure this will be a material amount, and if it is, I doubt it will be very much.
What are your thoughts, Don?
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