When broke, tax the toke?
The pragmatic economic argument for taxing legal marijuana
When broke, tax the toke?
My Sunday print column, expanded and updated:
The voters of trend-setting California may well decide this November to legalize marijuana – there’s a serious ballot referendum, and 56 percent of Californians say they support the idea – and no doubt this would be great news for the munchie industry, the bootleggers of Grateful Dead music, and the millions of respectable tax-paying tokers who have long yearned for an era of reefer gladness.
Seriously, this is a story about how desperate times require desperate measures. Legalization advocates, including many ex-cops and ex-prosecutors, have long contended that it’s nuts to keep criminalizing otherwise law-abiding citizens while wasting $8 billion a year in law-enforcement costs. That argument has never worked. But the new argument, cleverly synched to the recession mindset, may well herald a new chapter in the history of pot prohibition.
It’s simple, really: State governments awash in red ink can solve some of their revenue woes by legalizing marijuana for adults and slapping it with a sin tax.
So much of the marijuana debate used to be about morality; now it’s mostly about economics and practicality – which is why New Hampshire, Massachusetts, and Rhode Island are also floating measures to legalize and tax; why similar voter referenda are in the works in Washington state and Oregon; why 14 states - including, most recently, New Jersey - have legalized medical marijuana, and why even Pennsylvania, hardly known as a haven for innovation, is currently weighing the sanction of medical pot, complete with six percent sales tax. (Meanwhile, the city of Philadelphia, with an OK from the state Supreme Court, is reportedly preparing to decriminalize the possession of weed for personal use, as early as next month, in order to sweep 3,000 annual criminal cases out of the clogged city courts. Under the new rules, city cops could still bust a casual toker, but the toker would only pay a fine.)
California, however, is the likeliest lab for a legal toke tax, given its dire financial straits and the fact that marijuana is the state’s top cash crop, racking up an estimated $14 billion in annual sales – twice as much as the number-two agricultural commodity, milk and cream. The fiscal wizards at the State Board of Equalization say that pot could put $1.4 billion a year into the depleted California coffers, which helps explain why 56 percent of Californianians like the legalization option, and find it preferable to the ongoing layoffs of teachers and other public servants.
Indeed, marijuana is reportedly the top cash crop in a dozen states, and one of the top five in 39 states – valued annually at anywhere from $36 billion to $100 billion. That’s a lot of money left on the table for the black market – what the economists refer to as "deadweight losses." In fact, five years ago, a Harvard economist concluded in a report that legal weed nationwide would yield at least $6 billion in revenue if it was sin-taxed at rates comparable to alcohol and tobacco.
Actually, I doubt that most stoners see themselves as sinners – what’s immoral about seeing Avatar three times, or rooting for The Dude in The Big Lewbowski, or strip-mining a tray of brownies, or punctuating the conversation with lines like, "I’m sorry, what was I just talking about?" – but most would probably be willing to pay a sin tax in exchange for the opportunity to imbibe, hassle-free, with no fear that they might join the 765,000 Americans who were reportedly busted last year for possession.
Pot-smokers have long been bugged by the stigma. When I covered a marijuana reform convention in Washington way back in 1977, a delegate from Illinois named Paul Kuhn spoke for many when he complained to me, "You can get rip-roaring, toilet-hugging, puking drunk in public, and that’s OK. But if you pass a joint in public to a friend, you’re a pusher."
But even the reformers of ’77 shied away from legalization; they said it was "naïve" to believe that Americans would ever buy the idea. Today’s generation is shrewder; the word legalization doesn’t even appear in the California ballot proposal. The well-organized proponents, including a retired superior court judge who got fed up with handling pot cases, are calling it the "Regulate, Control and Tax Cannabis Act," and the first TV ad features an ex-cop talking about how a legal sin tax would replenish city and county budgets, and free up law-enforcement expenses for real crime.
There is serious strategist muscle on the legalization side - notably Chris Lehane, a former Clinton/Gore communications aide, and several other veterans of statewide California campaigns - and the ballot proposal itself is carefully crafted for the swing voter. It would legalize pot only for those over 21, and it would retain the current ban against driving stoned. It would also permit each individual county to decide whether it wants to regulate and tax weed - or to opt out entirely (just as we already have many "dry" towns that ban booze sales.)
Frankly, California and other cash-strapped states dn't have a whole lot of sin tax options. Cigarettes and booze are already taxed to the max, and (as Philadelphia is currently discovering) any attempts to slap special levies on sugared water are fiercely resisted by soda companies that fear any curbs on their freedom to rot kids’ teeth. By contrast, stoners crave the respectability of being taxed; the fiercest tax opponents are probably the Mexican drug cartels, which would lose market share just as the mob lost out on liquor when Prohibition ended in ’33.
Granted, nobody quite knows whether or how the California pot plan would fly in practice. Pot use would still be illegal under federal law – the current director of the National Drug Control Policy has said that "legalization is not in the president’s vocabulary" – and the U.S. Constitution decrees that federal law trumps state law. On the other hand, the Obama team has stated that it has no interest in hassling the medical-marijuana states, even though their laws conflict with the federal ban.
The big question, really, is how such a sin tax would be structured. Would all sellers be licensed? Would it be a point-of-sale excise tax, on top of the sales tax?
It’s worth pondering, because some state is bound to take the plunge at some point, even if California’s voters ultimately balk in November – which certainly could happen because, favorable pot polls notwithstanding, conservatives riled up by health reform seem most energized to turn out in disproportionate numbers this year. And reefer foes, who have yet to organize or raise money, will undoubtedly contend that legalization would make it easier for kids to get the drug. (James Gray, a retired superior court judge in Orange County and a legalization proponent, says in response that, under the status quo, kids have a far easier time getting weed than alcohol, precisely because the latter is regulated. As he told Time magazine last year, referring to pot's illegality, "we couldn't make this drug any more available if we tried.")
The bottom line is that public support for legalizing the crop has been building incrementally for a very long time. Gallup found only 12 percent of Americans in favor back in 1969, but 31 percent said yes in 2000, 36 percent said yes in 2005, and 44 percent said yes in 2009. The economic crisis has put wind behind the sentiment, and it seems inevitable that there will come a day – if not in November, then perhaps in the next major recession – when a presidential candidate will find it perfectly politic to speechify about the audacity of dope.