As we continue to legalize marijuana, state by state we see widely differing schemes of taxing the herb. From a low of Massachusetts’ proposed 3.75 percent state tax to Washington State’s 37 percent state tax, every state has come up with something different.
Besides the obvious answer, “Because they can,” it’s interesting to consider how we apply taxes to other agricultural goods. No matter how you look at it, marijuana consumers are bearing an unfair burden of taxation.
Take Washington, the nation’s highest statewide marijuana tax, at 37 percent. In Vancouver, WA, just across the border from Portland, OR, the state and local sales taxes add up to an additional 8.4 percent. So, if you went and bought an eighth of Sour Diesel for $27, that’s about an $18.57 base price + $6.87 marijuana tax + $1.56 state & local sales taxes… and yes, they’re selling marijuana for a base price of $5.31 a gram in Vancouver, Washington.
Yes, the taxes from marijuana go to good causes – like improving education – but shouldn’t all taxes go toward such worthy causes? Why tap the cannabis consumer to fix the schools?
Marijuana, of course, is not the only substance that suffers such taxation. We all know alcohol and tobacco also get overtaxed compared to other goods.
But the argument behind taxation of those items is to offset the social harms they cause, even though the high taxes on booze ($6.83 on a fifth of gin in Washington) and cigs ($30.32 per carton) only cover about one-tenth of the social costs. Why should a $27 purchase of marijuana or alcohol be subject to a similar $6.85-ish tax when the alcohol causes far more harm than the marijuana?
Philadelphia, Pennsylvania just passed a 1.5 cent-per-ounce tax on certain beverages – sodas, teas, sports drinks, and energy drinks. The reason given is that it is to help address the problem of obesity. By adding about $1 extra to the cost of a two-liter bottle of soda, it’s argued, fewer sodas will be consumed and the people will be healthier. (Never mind that they’re also taxing diet sodas and not taxing chocolate milk and fruit juices.)
So if the idea is that we want to use our tax code to punish people into making healthier decisions as consumers, why would we be taxing alcohol and marijuana similarly, instead of making marijuana taxes lower to entice consumers to choose the safer alternative?
Furthermore, the higher we make the marijuana taxes, the more we promote the continuation of black market marijuana sales. It’s the black market where we find the harms of marijuana – criminal control, violence to solve disputes, untested products – so by overtaxing marijuana, we increase harm rather than decrease it.
Another consideration is that as marijuana continues to be legalized, the wholesale prices are going to continue to fall. Whatever the tax rate, the tax revenues will fall as the price falls, unless consumption increases to offset the losses.
But at some point, everyone who wants to smoke weed will be smoking weed and the price will still continue to fall. What will governments accustomed to high marijuana tax revenues do then? Some possibilities include taxing marijuana by weight and taxing marijuana by potency, options that will create even more incentives for the black market.
Politically, it’s improbable we’d get marijuana legalization without any sort of added taxation. Let’s just hope more states follow Massachusetts’ lead with the lowest possible taxes.