How Should Marijuana Be Taxed, Part II

This is part II of a two part series on marijuana excise taxes. In part I, I discussed various rationales behind excise taxes and how those rationales do or do not apply to cannabis. In this post, I will discuss how states generally handle marijuana excise taxes and how they generally should handle marijuana excise taxes.

In a world ruled by the rational, I would be debating the excise tax on the level of rationality in my previous blog post, but we don’t live in that world.

Instead, we are forced to relive arguments for and against taxation that do not really push the issue forward. One argument against levying any kind of taxation that we see come up in these discussions is that the government cannot or should not tax cannabis because cannabis is “natural” or “from the earth.”  That argument presupposes that there is something inherently more natural about cannabis than other products and that the government never levies excise taxes on other natural products, both of which are incorrect. Most every product that we make and distribute is natural to the extent that its core components can be found in nature. There are varying numbers of steps to get to the final product, but marijuana falls onto the spectrum like anything else. Marijuana is, at minimum, planted, harvested, dried, trimmed, cured, and packaged. Compare to beer, which we generally agree is properly the subject of an excise tax. Barley or other grain is grown and harvested. It is boiled in a mash to extract sugars. That grain mash is mixed with water, steeped with hops, and left in a container to ferment before getting bottled. There is nothing inherent in either process that makes it either more or less susceptible to taxation. Our federal government even levies an excise tax on unprocessed crude oil, which has undergone no processing at all. It is pumped from the ground, and it gets taxed when it is brought to a refinery. So though there are many good arguments for not subjecting marijuana to an excise tax, the “it’s natural” argument does not carry much weight.

And there are a lot of good reasons to oppose any amount of excise tax. These taxes tend to be regressive, hitting low-income individuals the hardest especially, where demand for a product is inelastic — where demand for the product does not tend to change as rapidly as prices change. Excise taxes often deprive low-income families of money that they should otherwise be using on basic essentials, without really reducing consumption of the taxed goods. Just look at the amount poor Americans spend on alcohol excise taxes every year. High tax rates also encourage the growth of illicit marketplaces, especially with products like marijuana where the illicit market is already entrenched. Finally, the case for excise taxes is often based on the morality of a governing class that does not necessarily match the electorate in demographics or in beliefs.  For various reasons that have been discussed at length, marijuana has been demonized as an immoral drug in a way beyond that of alcohol for much of the twentieth and twenty-first centuries. The same people that grew up in the reefer madness culture, though getting advanced in age, are still in positions of power. They think that marijuana is “bad,” so our choices are to either keep it illegal or to regulate and tax the hell out of it. Allowing a truly free market for marijuana is out of the question for them, and they continue relying on specious arguments.

But just because we disagree with these people does not mean that we get to discount them, which gets us to the number one reason we see for assenting to marijuana excise taxes in just about every jurisdiction that legalizes it. High taxes deliver fence-sitting voters that in their hearts still think marijuana is “bad.” Who do you think New Approach Washington was targeting with this commercial? Marijuana advocates need to understand that though we would prefer a purely economic model of levying excise taxes, high taxes can change voters minds. The excise tax is a compromise between the “freedom/legalization camp” and the “marijuana-is-evil camp.” On issues where people can be so diametrically opposed as they are on marijuana, it is nice that there can be positions at least mildly acceptable to both sides, where we are not letting the perfect be the enemy of the good. If excise taxes are needed to stop the scourge that marijuana-as-crime has levied on our communities, so be it. At least for now, or until attitudes on marijuana change more across the board.

What do you think?

For more on the taxing of marijuana, check out the following: