Send comments, tips,
and suggestions to:
DrugWarRant
Join us on Pete's couch.
couch

DrugWarRant.com, the longest running single-issue blog devoted to drug policy, is published by the Prohibition Isn't Free Foundation
facebooktwitterrss
October 2010
M T W T F S S
« Sep   Nov »
 123
45678910
11121314151617
18192021222324
25262728293031

Archives

Authors

Fears of a 10 percent tax

Some of the stuff that comes out in the circus of the upcoming Prop 19 vote is just amazing.

Scott Erickson writes in the Daily Caller: If pot is legalized, government will distort the market for it

What many in the drug legalization crowd fail to recognize is that government, in its infinite wisdom, will ultimately distort this newly legitimate marketplace to such a degree that it will render the perceived benefits of its creation insignificant. In its zeal to capitalize on what it sees as a major new source of revenue, government will popularize marijuana use among the general public and, through overzealous taxation and regulation, fail to reduce the aforementioned black market and all of its attendant criminality.

Case in point: California’s Proposition 19, while not setting a uniform standard for taxation of marijuana across the state, will allow individual localities the leeway to set their own standards of taxation on the sale and cultivation of marijuana. If Proposition 19 and Measure C — a related measure linked to the passage of Prop 19 — pass, localities will be able to tax marijuana at rates upwards of ten percent.

While Proposition 19 would make the possession and recreational use of marijuana legal in California, levying a ten percent tax on those selling it lawfully, coupled with a host of other fees related to its cultivation, will increase its cost to such a degree that many pot smokers will simply continue to buy their weed from sources unencumbered by the state’s regulations, e.g. drug dealers.

This does not bode well for the proposition that legalizing “harmless” drugs such as marijuana will lessen the prevalence of illicit drug dealers.

Upwards of 10 percent? You’re kidding. California’s sales tax is 8.25%. 10 percent is nothing. At a 10 percent tax, there’s no way that the black market could compete. Plus, the fact is, consumers prefer to purchase legally and are willing to pay quite a significant premium to do so.

So localities would have quite a bit of leeway in adding taxes. Their biggest concern will be competition from other localities. If one town raises taxes too high, the neighboring town with lower cannabis taxes will benefit from greater sales.

Post to Twitter Post to Facebook Post to Reddit Post to StumbleUpon

17 comments to Fears of a 10 percent tax

  • Ben Mann

    The average tax in California, if Prop 19 passes, will probably be WAY higher than 10%. And you know what? It’ll still destroy the black market overnight.

    If it costs $50 to produce one ounce of high-quality pot(probably a WAY high estimate for outdoor-grown), you could tax it at 100%, and people will still line up in droves to buy it at $100 per ounce before they would consider paying an illegal dealer $75 per ounce(he has to profit to make it worth his while, right?). Why risk jail?

    People really need to understand that legalization instantly ends the black market. It’s done, over, caput.

    Once I can walk across the street and buy a pack of Js at 7-11, I will never again contribute another penny to the black market, with all its attendant violence.

  • Just Legalize It

    i would love just a 10% tax on it…

    mostly the talks are about $50/ounce which is ridiculous when you consider tobacco is taxed at around $5/ounce

    but id take the $50/oz tax any day over prohibition garbage

  • kaptinemo

    As always, the market will apply it’s own particular weight to any equation of taxation. People won’t buy it if it is over-priced. Vendors will lower the price until an equilibrium is reached. And the tax will be adjusted accordingly.

    Happens every time for every popular invention; those old enough know how much VCR’s cost when they first came out (over a thousand dollars). Now you can get a VCR/DVD combo just about everywhere for 40-50 bucks. Given the popularity of cannabis, that ‘adjustment’ will happen at warp speed once it’s re-legalized.

  • […] of a 10 percent tax Fears of a 10 percent tax DrugWarRant / Pete Guither / 10,8,2010 Some of the stuff that comes out in the circus of the […]

  • claygooding

    The best way to defeat the cartels and even local growers is to just let it go,let everyone raise as much as they want,sell to anyone over 21 and let marijuana find its own market price.
    Forget about the possible taxes,the keeping of 40 billion dollars in Americans pockets instead of going to the cartels and the reduction of 8.7 billion in law enforcement funds would stimulate the economy more than
    anything our government has done with their bailouts.

  • Rhayader

    Anybody try to buy a pack of cigarettes in NYC lately? It’ll run you something like 10 bucks a pack — giving a total marginal tax rate WAY higher than 10%. But which market is larger in NYC: legitimate tobacco sales or the black market? How many stories do we see about Brooklyn cigarette gangs having turf wars? How many innocent people are thrown in jail every year thanks to violations of the tobacco regulatory structure? Somehow, with a ridiculous taxation rate, the tobacco market in NYC hasn’t been surrendered to violent underground thugs.

    These objections are beyond pathetic. All of a sudden we get close to real change, and regulatory bureaucracy is more of a menace than the criminal prohibition monolith? Please.

  • Ed Dunkle

    “A committed public servant, he has worked in the field of law enforcement for the past decade and holds both his B.S. and M.S. in Criminal Justice Studies.”

    What does one learn with an M.S. in Criminal Justice Studies? I’m not being snarky. What is that all about? Who are these people?

  • undrgrndgirl

    um…i already pay 9.5% tax for medical cannabis in san francisco (as the tax rate is sf is 9.5%) and in my neck of california the sales tax is 9.25% – i don’t think anyone will mind a 10% tax on cannabis…

  • Ned

    The tax question is the most screwed up aspect of the debate, the revenue, the rate, the method.

    This week Ammiano introduced ABX 69. This is to have an enabling piece of legislation in place should 19 make it. It puts the $50 per oz tax in place as maximum and directs the overseeing agency (the ABC) to seek to reduce it when possible. Hopefully that tax will be shortlived.

    We’re talking about excise taxes. The $50 per oz tax is obscene. Excise taxes on tobacco and alcohol are just small percentage of the retail price. In CA the excise collected by the state for a GALLON of wine is 0.20 cents! That’s about a nickel per bottle. By contrast the proposed cannabis tax is about a dollar per joint.

    The single biggest problem is that a long history of severely constricted supply has embedded ridiculous values for cannabis, whereas 80 years of regulated distribution and full scale production has the cost of ethanol to consumers down to pennies per drink for the cheapest products. Properly scaled full cannabis production could easily do the same.

    There will be some degree of black market as long as the retail price including taxes remains above $50 per oz. The momentum of the black market in CA is very strong. There will continue to be growing by low income rural folks throughout the state at those price levels. There will be tax avoidance at the $50 rate. Imported Mexican pot has traded at those price levels for years. The quality is lower but the market segment has endured. The will still be incentives for some to continue. For this to work, the anti people have to shut up, step back and get out of the way. Their continued interference will create stupid obstacles and problems.

    Another thing, real excise taxes, as created by experts, are sophisticated, not idiotic and simplistic. With alcohol, it is the alcohol itself that is taxed, not the liquid volume of the product. Beer, wine, and various forms of spirits are taxed at very different rates based on their alcohol content. Otherwise, no one would make beer or wine because so much of the volume is water and who wants to pay a tax on water? Cannabis taxes need to be structured around product type and THC content. There should be at least 6 or 8 tax levels. Otherwise, if I’m a producer, I submit only hashfor taxation. The most THC per oz I can produce.

    Right now we have a situation where small production brings very high returns. It is like no other agricultural product. Most growers now involved would have little interest in a world where large scale production was required to compete and prices for commercial grade were under $100 per pound. If we produced most cannabis like we produce wine grapes(which require similar climate and intensive cultivation), large acreages worked by low cost machines and labor would be the dominate paradigm. There of course, could still be gourmet or boutique production, just like there are expensive smaller production wines, but even that would be nothing like what exists today. The thing is this is unlikely to be what happens. For lots of stupid reasons.

  • KBCraig

    The worst fear is that it will be taxed similarly to cigarettes, with an effective tax rate (state and federal combined) of roughly 50%. (Federal tax $1.01 per pack, state tax $0.87 per pack, total $1.88 per pack. At $55 per carton, that is an effective tax rate of 52%.)

    That is a per-volume tax, not a percentage tax. Cannabis smokers go through far less volume than tobacco smokers, so in order to get the money they’re after, the state is likely to impose taxes that are a far higher percentage of the value.

  • Maria

    Maybe I’m a putz but even 10% on top of the 8.25% is still fine to me (as a recreational/therapy user).

    I wonder if the arguments exist because people just hate taxes (who doesn’t??) and/or don’t think something as special as cannabis should be taxed. On principle. Or something. Maybe it shouldn’t but of course it has to be.

  • Just me.

    FFS people, pull you crianium out of your orifice.

  • claygooding

    I don’t complain about the tax except when it is in addition to exorbitant licensing fees and any added hoops
    the growers have to jump through.
    At what point does the green market profits not worth the risk? The green market already has it’s shipping routes,sales points and customers and they could drop their prices some and still make good money at it if
    taxes,grow licenses,production costs and retail licenses and markup keep the price of weed where it is now.
    And that is what the simpleton city council members are pricing their licenses at,street price retail outlets.
    They see exactly what the DEA and their own cops tell them it is worth. About $20 a joint.

  • claygooding

    Actually it makes no personal difference to me as long as I can grow my own,but I have high hopes that we can take the violence away from the most beautiful,beneficial plant
    on our rock.

  • Ned

    The bottom line is that the legal system of distribution will have to deliver both commercial and gourmet product including taxes at a price point that not only undercuts the black market, but also makes black marketeering totally not worth the effort. That’s how it is with ALL alcohol products now. Even if you enjoy making your own beer or wine, the economics make black market sales by individuals not a money making proposition. legal regulated cannabis has to do the same.

  • Duncan20903

    Ned, they busted a bootlegging operation in Virginia not that long ago. It hasn’t even been 90 days since Willie Nelson’s entourage was cited for possession of bootleg whiskey. For a while I dated a girl who was a dedicated alcoholic, and she knew a couple of bootleggers so she didn’t have to resort to mouthwash on Sundays.

    Busted in MS for possession of drinking alcohol and operating a still: http://tinyurl.com/26yh2a3

    http://tinyurl.com/25sr4x7 <—North Carolina

    felony possession of cigarettes:
    http://tinyurl.com/26rtwx9

    When I was in jail in the mid 80s there was a fellow there for rustling cattle. I kid you not. But when I thought about it I realized, well why not? A cow is worth thousands of dollars at the low end. Why wouldn't a thief steal a cow?

  • Duncan20903

    Wow, so how do people who think that potheads won’t pay sales tax reconcile the $50 million to $100 million that the CBOE reports was pocketed by California for sales and use taxes imposed on medical cannabis?

    http://www.canorml.org/news/100mil.html