Americans love pot taxes: but hyping cannabis cash as a source of government revenue is a bad idea.

AuthorSullum, Jacob

NEXT FALL California voters can expect to see at least one ballot initiative aimed at legalizing marijuana. At press time, the leading contender is called the Control, Regulate, and Tax Cannabis Act. A legalization initiative that has qualified for Nevada's 2016 ballot is called the Regulation and Taxation of Marijuana Act, which is also the name of proposed 2016 initiatives in Arizona and Massachusetts. In 2014 Alaskans approved "an Act to tax and regulate the production, sale, and use of marijuana," while Oregonians said yes to the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act. And before the Marijuana Policy Project (MPP) joined forces with Legalize Maine in October, the name of the MPP initiative in that state was--wait for it--the Regulation and Taxation of Marijuana Act. Notice a pattern?

Activists assume that the prospect of new government revenue makes legalization more appealing, and they seem to be right. In Colorado, the first jurisdiction in the world to legalize marijuana for recreational use, voters approved pot taxes three times in four years, each time by a bigger margin.

In 2012 Coloradans said yes to Amendment 64, which legalized marijuana, instructed the state legislature to impose an excise tax of up to 15 percent on it, and earmarked the first $40 million in revenue from that tax for public school repair and construction. The initiative passed with 55 percent of the vote.

A year later, after the Colorado General Assembly decided to impose the maximum authorized excise tax plus a special 10 percent sales tax on marijuana, the new levies were presented to voters, as required by Colorado's Taxpayer Bill of Rights (TABOR). The taxes passed with 65 percent of the vote.

In 2015 legislators realized they would have to return all of the money raised by the new marijuana taxes unless voters gave them permission to keep it. That referendum also was required by TABOR, which mandates tax refunds when total state revenue is higher than projected. This time 69 percent of voters said yes to funding government programs with cash confiscated from cannabis consumers.

Ordinarily people are not all that keen on handing over more of their hard-earned money to the government. But in this case most of the people voting for the levies won't be paying them. According to federal survey data, only 13 percent of Colorado residents use marijuana. In 2013, on the same day Colorado voters approved marijuana taxes by a margin of nearly 2 to 1, they rejected an income tax increase by exactly the same lopsided margin. Both measures were aimed at funding public schools.

As with tobacco taxes, shifting the cost of government services to other people is perennially appealing. But that is not the whole story here. In Colorado the marijuana industry urged voters to approve the hefty taxes proposed by the legislature, seeing them as a token of legitimacy and a safeguard against legislative backsliding. Once the cannabis cash started flowing into the state treasury, marijuana merchants figured, they would become a revenue source to be protected rather than a nuisance to be curbed.

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