Should Marijuana Be Taxed? If So, At What Rate?
The momentum to end cannabis prohibition is growing everyday. The polls prove that, and anyone who wants to deny the reality that marijuana prohibition has failed needs to get their heads out of their butts. Part of the reason that ending cannabis prohibition is becoming more popular in society is due to the financial crisis. There are a lot of people that I have known for decades that never supported marijuana legalization in the past, but do now because they feel it will get us out of this crisis if we just legalized and taxed marijuana.
This new phenomenon has troubled some members of the marijuana community. One activist told me that he will never, ever support taxing marijuana because it's a plant, and after all, we don't tax other plants in our backyard gardens. I have always played the devil's advocate since I was a little kid, and I can't help but point out to my friend that if we don't compromise on this area of ending cannabis prohibition, we will likely lose a lot of the votes that we would have otherwise had.
Now I'm not saying that we should tax marijuana to death just to make it legal. Taxing marijuana too much has been a strong fear of mine since before we ever started this blog. I saw the potential writing on the wall when I started hearing politicians throwing around enormous tax rates as selling points for legalization. The last thing I want to see happen is marijuana prohibition end, and it doesn't work as well as it should because there's a 25% tax every time you turn around. Marijuana taxes need to help the government, but just as any industry, the government can't place too high of a tax burden that will hinder the industry.
The marijuana industry will generate a lot of tax dollars if there is the right balance. The purpose of this article is to discuss what that hypothetical tax rate should be. Is it 1%? 10%? Higher? Before people blurt out some knee-jerk response, there are some important things to consider. Taxes are very complicated. Some states heavily rely on purchase related taxes like Nevada. Some other states like Oregon have no sales tax. This can be a possible source of tension that a lot of people don't think about when they declare how they feel about taxing marijuana. The tax structure of a state will no doubt have an effect on the way voters feel about taxing marijuana, and it poses unique issues for each state that will have to be worked out if cannabis prohibition is ended.
Of course, each state could place a 'vice tax' on marijuana, which wouldn't interfere with other tax structures. But realize that vice taxes are the highest rates in the nation. Also, is all marijuana consumption considered a 'vice'? I know when my tendinitis is flaring up after a long day on the computer, the topical cannabis lotion I use for pain relief doesn't seem the same as say using alcohol or going to a strip club. A vice tax wouldn't differentiate between the two, and as a medical marijuana patient, I am not comfortable with that.
The only example we have for taxing marijuana is medical marijuana in California and Colorado, which have passed legislation allowing the taxing of medical marijuana sales. I personally think that legalization would be a larger, different animal and therefore would have a different tax structure, but maybe not. Steve DeAngelo told the Huffington Post that, "Harborside operates as a nonprofit corporation while paying state sales taxes and a 5 percent local tax to Oakland — for a total of $3.1 million this year (2011)." Oakland dispensaries have been operating at that rate for a couple of years now, and it seems to be working. Would a 5% tax rate work with a full legalization model, that will no doubt bring many more operations?
I want to go back to the theory of never supporting a tax on marijuana. If you were presented with two options, putting everything else aside, how would you choose? One option is the end of prohibition with a 5% tax on marijuana. The other option is our current situation of medical marijuana legalization in some areas with differing levels of success and full on prohibition everywhere else. Which would you choose? I wish I could somehow get real facts about how people truly feel about this issue so I could make some nerdy Venn Diagrams. I would love to see the shift if I changed the first option to 4% or up to 6% and so on. What would be the tipping point between 51% voting yes? I guess every marijuana supporter in America would also like to see that too I'd imagine. What do readers think? No tax, period? 1%? 5%? 25%? I look forward to your responses.