Taxing Marijuana
California voters may soon get a chance to weigh in on whether marijuana should be legalized and taxed by the state. If enacted, this may help the state's budget by providing revenue from a brand new source, while also freeing up money that previously went to enforcement efforts against marijuana growing. Of course, marijuana would still be illegal under federal law, but this may be a turning point in the legalization movement -- the point where politicians desperate for tax revenues see dollar signs instead of prison bars when looking at the cannabis plant.
And make no mistake -- this is not medical marijuana we are talking about. From the wire service report:
A proposed ballot measure filed with the California attorney general's office would allow adults 21 and over to possess up to an ounce of pot. Homeowners could grow marijuana for personal use on garden plots up to 25 square feet.
Now, 25 square feet sounds like a lot, but it's really only a plot five feet by five feet. Assumably, this was written into the ballot measure so marijuana (at least initially) wouldn't be sown by agribusinesses in 1,000-acre fields. But even with the land-use restriction, the initiative is remarkable for the lack of other restrictions. No mention is made of "medical" or "medicine" or any of that -- just "adults."
There are even two ballot measures to choose from. The second one is even less restrictive:
The Tax, Regulate and Control Cannabis Act of 2010 would set no specific limits on the amount of pot adults could possess or grow for personal use. The measure would repeal all local and state marijuana laws and clear the criminal record of anyone convicted of a pot-related offense.
Bet that would save a few dollars on prisons. And even if these ballot measures fail, state legislators are introducing bills to do exactly the same thing. So, while it should not in any way be seen as inevitable, it now appears possible that California may soon legalize and tax marijuana, used for recreational purposes.
While the concept of taxing marijuana is a new one for most people to consider, it actually has a long history. The very first federal law dealing with (pun intended) marijuana was the Marihuana Tax Act of 1937. Earlier laws outlawing "narcotics" had left out marijuana (or, in the spelling more common at the time, "marihuana"), so this was a more specific law dealing only with cannabis (and hemp). It ostensibly levied a tax on marijuana, which was widely used in medical products of the day. The tax was pretty low (the base rate for a doctor was one dollar for a tax stamp, per year), but the penalties for not paying the tax were the real purpose of the law. The law did not make marijuana illegal, so what the feds would clap you in prison for was not ponying up the tax. This had to be softened during World War II, when hemp was necessary for military supplies (hemp ropes, before nylon became widespread) and the planting of hemp was actually encouraged by the federal government (as in the "Hemp for Victory" movie put out by the feds in 1942).
Later, in the 1950s, marijuana was flat-out made illegal at the federal level. And then, at the beginning of the 1970s, the Controlled Substances Act codified all illegal drugs, and superceded the 1937 Marihuana Tax Act.
But taxing illegal drugs, including marijuana, didn't end there. The next iteration of taxing marijuana came as a result of individual states being annoyed at the federal government. I believe the first of these was Arizona, which (in the late 1970s and early 1980s) had to watch as the feds made a lot of money off the drug traffickers moving through their (border) state. In the 1980s, the big weapon used in the Drug War was property confiscation. So the federal Drug Enforcement Agency (DEA) would catch a semi truck full of bales of weed on an Arizona highway, and they would impound the truck. Later, they'd sell the truck in a government auction, and the DEA got to keep the money. Arizona was annoyed at being cut out of the profits, so they instituted a state tax on marijuana and other illegal drugs. This way, when the semi was auctioned, they could claim "unpaid taxes" on the cargo, and get their cut of the money raised. Many other states followed suit, and passed their own drug taxes for the same purpose -- forcing the feds to share the spoils. They all sold (and some still sell) drug tax stamps for this purpose (Nebraska's stamp unquestionably has the most creative design).
So, once again, the purpose of the tax was disingenuous. The states had no interest in making drugs legal, they just wanted a cut from any busts the feds made in their state. But now, for the first time, California seems to be seriously considering both legalization and taxation simultaneously -- in other words, they are interested in the tax revenues themselves, rather than a back-door method of gaining windfall taxes from federal busts.
But I would caution the state lawmakers -- and the people advocating for the new laws -- to be conservative in estimating the revenue gained from these taxes. This is a by-product of the 100-year history of the Drug War itself. When you read in a newspaper that "$6 million worth of drugs captured" this dollar amount is often vastly overstated. And, even taking such estimates seriously, there's a factor that most people don't even take into consideration, which shouldn't be ignored.
Say you want to estimate how much money California would make off a new marijuana tax. You come up with an estimate of how much pot is sold in the state (let's call it $100 million, just for argument's sake -- since I have no idea what the actual figure is). You then estimate how much the market will grow, due to it now being legal. But then you've got to subtract anyone who grows their own at home, since they won't be selling it to anyone (the tax is usually levied on point of sale, but I guess if it was a production tax they'd theoretically tax peoples' back gardens as well). Finally, you come up with a figure.
But the big factor most people will miss is that the price of something which was previously illegal will go down if it is made legal. The price of moonshine during Prohibition was about ten times what hard alcohol sold for afterwards. Meaning, overnight, that "$100 million" market becomes "$10 million." When something is illegal, most of the price is for the risk involved in producing it and getting it to the customer. Remove the risk, the price always drops. Always. Especially if a law passes without a "25 square foot" restriction, because then farmers out in California's Central Valley will start growing massive amounts of marijuana (and as every economist knows, when the supply goes up, the price goes down).
So California should be careful when estimating what effect a (legal) marijuana tax would have on the state's coffers. An easy way to avoid some of this problem would be to design the tax on "weight" rather than as a sales tax (percent of purchase price, in other words). Then the projections for anticipated revenue might be a little easier to make, because the price per ounce to the customer wouldn't really matter, as the state would be guaranteed a certain dollar amount no matter how low it went.
A recent poll showed that 56% of California voters already approve of the concept of legalizing and taxing marijuana for personal, recreational use. Meaning that a ballot initiative has a fairly good chance of passing. I would just caution everyone to be realistic when making estimates as to how much tax revenue would be raised by doing so. California has such massive budget problems right now that a marijuana tax certainly couldn't hurt the state's cash flow. And, with the voters apparently ready to approve such a scheme, it looks entirely possible that it could happen. But overestimating the revenues expected could actually undermine the case for doing so. The advocates for legalization and taxation should be careful when drawing up their estimates, and keep their promises of tax revenue realistic, to better convince voters of the practicality of the idea.
Chris Weigant blogs at: ChrisWeigant.com
Andrea Chalupa: I'm Too Sexy for This Footprint: Eco-Designers Take on Fashion's Carbon Footprint
A growing number of eco-designers are trying to reduce their carbon footprint, by using production processes that are gentler on the environment and all natural materials, such as hemp and cotton.
Harvey Wasserman: Honor Our Hemp-Raising Patriot Heroes
For rope, paper, clothing, food, fuel -- hemp has been a critical crop for cash and survival for 6,000 years. Today it contributes billions of dollars to the German, Canadian and Chinese economies.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
Take guns out of the drug war. At the least innocent lives would be spared. After decades of prohibition, more lives have been altered or lost because of guns than overdoses of drugs. If drug crazed addicts didn't need to steal, kill and otherwise wreak havoc to get their fix, would we be better off? If someone wants to smoke crack or shoot smack, stick them in a rubber room then they can't hurt anyone.
The only way to take drugs off the street is to put them somewhere else. Does anyone really think we can make drugs just go away?
Publicly reminding us about the drug war are we also reminding addicts to get their next fix. There are those who every time they see an egg frying they think of their drug habit! Any psycotheripist will tell you, "to suggest a negative is to suggest the positive". Or just ask a smoker if those ads about not smoking make them think of smoking.
Using force to fix problems not already caused by force is to cause violent rebellion. Fighting fire with fire, guns with guns seems totally acceptable, so why not fight drugs with drugs???
The government wil use diplomacy and negotiation to attempt fixing problems with other countries before resorting to force, yet declare a drug war against it's own citizens. Addiction is a physcological problem, should we send people with guns try to fix it?
I can tell you that the $100 million mark is so far off. Don't know where you came up with that. Most estimates put the California marijuana crop in the billions. In fact, given the more than 400 legal dispensaries operating in California already, each averaging at least $1 million in annual sales, equals $400 million already accounted for, and that is just LEGAL, MEDICAL marijuana. The illegal market is several times this size.
Now this doesn't include the potential of cannabis tourism to add to this total. In Holland they sell far more cannabis to foreigners than they do to the Dutch themselves. This could be the case in California too. So you can add tourist $$ to that tax revenue too!
See Chris Weigant's Profile
SkipStone -
I wasn't making an estimate at all, I was just pulling a number out of thin air to use as an example. Bears no relation to the reality of the situation. Or, if it does, it's no more than a wild coincidence.
Basically, I was lazy and didn't look for a real stat because it was just to show the 10x factor, nothing more.
-CW
my guess is that everybody and his brother and his neighbor will be growing marijuana, and very little will be publicly sold and taxed.
Read the blog of few spaces down. That theory holds little merit. Unless you understand the product and its market, you can't understand the dynamics in supply and demand in relation to the actual product or variation thereof.
It might be hard to believe but even the biggest growers sometimes run out and have to buy stuff from other ppl. It's difficult to time crops (esp. if you have only 25 sq ft to work with) so that you have a constant supply.
In addition the majority of users will never grow because it can be a lot of work, amateurs often can't get a viable crop and so many things can ruin a grow (bugs, mold, etc). It does take a fair amount of time, effort, experience and $$ to ensure a usable product. The pros know how to do it right!
The medical patients often can't grow for themselves. And if you've ever tried growing indoors without proper equipment you will be shocked at what an impact it will have on your house. Most ppl don't want to deal with the smell when they flower, or the other hassles involved..
So there will always be a BIG market for professionally grown and processed marijuana.
See Chris Weigant's Profile
Thanks to everyone for some interesting comments!
I just wanted to point one thing out. I wrote a month ago about the Schedule I/Schedule II issue, and on Barney Frank's efforts to change it:
http://www
Go to thomas.loc
-CW
Good point, that the price will go down. But all the associated costs, police enforcement, courts, jails, would also be eliminated. It's more than a tax, it's cost savings as well. Also, "as goes California
http://www
A good next step would be to legalize it. Period.
baby steps....I know it seems ridiculous, but you have to let people who are against it catch up to the idea. i think pretty soon - within the next 4-5 years, we'll see a wave go over the country of legalizing.
On the federal level we stand to lose an average of 14 billion dollars annually from not collected taxes on cannabis.
Both feds and states are spending acombined estimated 22 to 26 billion dollars annually to incarcerate NON VIOLENT drug users.
Over the 4 to 5 years you seem to think it may take the government loses an estimated 56 to 70 billion and will continue to waste another 88 to 100 plus billion on feeding the Prison-Ind
Do we really have time to wait and let special interests and their lackeys dictate more failing policy and waste more time and money???
LEGALIZE
TAX
REGULATE
NOW!!!
I do find the points brought up about self cultivation to be completely off base. Let's talk about the fallacy's in this heavily touted argument.
1) Do you think alcohol is cheaper when bought at a store or bar versus making your own at home?
2) Does anyone think it is possible to grow over 100 different strains of marijuana in their own garden?
3) There is a great deal of time and care spent growing these plants. You will not get the same quality by throwing a seed in the ground and coming back in 4 months or so.
4) Variety is king. Just like micro-brew drinkers, people like variety. They will go to stores that offer variety.
5) Most people have jobs and can't commit the time to growing their own marijuana.
6) What is more expensive? Doing your own taxes, financial planning, home renovation, landscaping, etc. My point is that just because you can do it yourself, that doesn't mean you will. People pay for things they can do themselves on a daily basis. Laundry, cleaning service, dog walkers, the list goes on and on.
7) People do make their own wine and beer. Has this had any impact on the tax revenue of the alcohol industry??
I wish this uneducated argument would stop. It is non-nonsensical at best. People DO pay for services. Think about crappy pizza delivery.
Are you kidding me?
Tax revenue on weed will jump through the roof if "legalized" in California. Everybody from all over America (including myself) will want to visit California just to get high and get out from under their own state's misfortunate situation.
Also, people seem to be forgetting that it will STILL be illegal under federal law and federal law trumps state law. So when Obama's long gone and the Feds decide to get in a pissy mood one day, everyone watch out!
Without cannabis, northern California is a wonderful place to visit - Redwoods, wine country...
But making it a bit more like Amsterdam would keep American 21+ tourists flocking to CA.....doe
Economics are moving the needle in the debate.
California could dig itself out of the red in no time...
This is an interesting legal issue. The question is, where would the feds have jurisdiction?
If the Feds could prove intent to send the drugs over state lines, then the feds would have jurisdiction, but otherwise any arrests by federal agents would turn the accused over to state jails and courts. Guess what happens then?
Now the feds could do what they did in Alaska, and put a rider in the national highway funding to remove highway funds to any state which allows legal consumption of weed, but I don't know if that would be as popular today as it was last century.
We need the revenue. Besides, industrial hemp can help save our environment because we can use it instead of trees for all types of paper products and it is of much higher quality and longer lasting. Besides, it is completely unethical and wrong that it should be illegal; if one's personal use is not harming anyone else, it is wrong the government interfere. Tobacco and alcohol are far more noxious and they are legal so it is not our health the government is concerned with. if you look into the history, the illegalization was due to racist policy against mexicans and white kids hanging out in predominantly African american jazz clubs where "reefer" was smoked and it is outdated and needs to be fixed. Pharmaceutical companies also may have played a role in the illegalization, too.
Ah, that good ol' reefer madness.
Nylon is a curse on the world. See the Great Pacific Garbage Patch.
Private prison businesses and police unions protecting overtime pay will railroad any effort to legalize pot.. Wasted time.
Welcome to Amsterdam West.
What will CA do about all the people in state prison based upon cannabis charges?
Also, what is the estimate on savings for police, attorneys, courts, prisons, etc.?
How much will the reduced income tax from the staff that is based upon that cottege industry will the state lose?
The sane thing to do would be to release all NON VIOLENT drug USERS, and re-integrate these people into society. As far as the "cottage industry" is concerned, I don't have exact numbers, but the tax loss from the "staff" would be more than offset by the release of NON VIOLENT users and savings to the tax payers as well as the income taxes paid by those released. (a "corrections" worker pays less in taxes than a single prisonere costs taxpayers annually)
As far as Mr. Weigant's assertion that tax revenue may be less, I agree with his reasoning, but he could be off as well, as currently cannabis use numbers are to be taken with a grain of salt. They require admission to an "illegal" activity and not every cannabis user will answer this truthfully. The use numbers may be higher than some estimates.
State initiatives may be what is needed in the future, as the current Bill introduced by Sen. Jim Webb - S-714 - the crime commission bill has bipartisan support and may well put cannabis regulation in State's hands when the fidings are made public. (The bill may become law later this year and after 18 months of study we may see results)
Of course the big stumbling block besides the propaganda and fearmongering from Congress and mass media, cannabis needs to be taken off schedule one and that is another can of worms.
Because, as you said, a truthful answer would require admission to an "illegal" activity, I think it's a safe bet to say that almost certainly, the number of cannabis users is far higher than has been estimated.
Maybe they could just have a personal growing license rather than a 'tax'. $25/year or something, per residence. Then someone could stop by every once and awhile to make sure they're not going crazy with it.
Um, I wouldn't want some "Inspector" coming by to my home - just to check up on things...s
Well, if you're going to tax it. I don't think it should be taxed, just let people grow it and smoke it, as long as they're not in the business of selling it.
Democrats would actually make me more inclined to vote for them if they actually had the balls to stand up for marijuana legalization (though I personally think hard drugs should still be attacked because they are so addictive and can truly kill people). Some of my best friends over the years have been laid back pot smoking types who would never hurt a fly. Doesn't appeal to me in the slightest, but still. How can you actually outlaw a God-given plant?!? That's crazy. But, really, what good are Democrats if they're too chicken to stand up for personal freedom? Bush's little surveillance things are *nothing* compared to outlawing actual plants and jailing anyone who grows one.
Alcohol is addictive and can kill. Just like ANYTHING we put in our bodies or do to ourselves, in moderation it will not kill. Don't make drug users criminals.
Alcohol has redeeming benefits, especially wine and is used in cooking. Can't say that for meth or heroin except in certain, purely medical cases and even then, it's difficult to keep people from becoming addicted.
I agree that users shouldn't be criminals. HOWEVER, those that produce and supply hard drugs should be purely because of the capacity for addiction. People got a friend of mine hooked on meth and it destroyed her life and her body. If I ever found that guy, he'd be lucky to survive the ambulance ride. She was fine as long as she just smoked. She had a highly addictive personality. Another kid I know lost his dad to heroin. He just couldn't get off of it and people kept giving it to him. Without a constant supply, it isn't the problem. I'd put heroin/cok
While tax revenue is a good selling feature, to gain public support, I am hoping the discussion about the many uses of the plant is the motivator leading to industrial growth using cannabis and creating jobs of the future. Hemp is 100% biodegradable and filters the air during growth. Hemp cultivation has been a casualty in the war on drugs. If cannabis becomes legal, industrial hemp will be also.
During the early years of America hemp was used for many things. I think with the technology of today, the sky is the limit. Hemp usage could benefit our environment and our economy.
I would like to see cannabis hemp reclassified. Richard Nixon left office in shame, but left his shameful policies behind. Politicians have been using 'tough on drug' rhetoric for political gain, while ignoring facts. Many studies have stated cannabis should not be classified with heroin and cocaine. It's time to reclassify cannabis. They all know the classification is wrong, but lack the courage to change it.
Henry Ford recognized the utility of the hemp plant. He constructed a car of resin stiffened hemp fiber, and even ran the car on ethanol made from hemp. Ford knew that hemp could produce vast economic resources if widely cultivated.
You must be logged in to comment. Log in or connect with
