With all the upheaval in Washington, it isn’t likely that federal proposals to tax marijuana will pass anytime soon. Yet as Professor Paul Caron catalogs, economists are looking anew at the proposed Marijuana Tax Equity Act (H.R. 501). It would end the federal prohibition on marijuana and allow it to be taxed. Growers, sellers and users would not to fear violating federal law. But dealing with taxes would be another story.
The bill would impose an excise tax of 50% on cannabis sales and an annual occupational tax on workers in the growing field of legal marijuana. Is that a good trade-off? Federal Proposals to Tax Marijuana: An Economic Analysis by Jane G. Gravelle & Sean Lowry focuses on potential federal marijuana taxes. The authors present justifications for taxes and they estimate levels of tax. They consider possible marijuana tax designs, as well as tax administration and enforcement issues such as labeling and tracking.
Of course, statistics can be deceptive. When Colorado legalized recreational use, it trumpeted the tax revenue it knew would be piling in. There’s a 2.9% sales tax and a 10% marijuana sales tax. Plus, there is a 15% excise tax on the average market rate of retail marijuana. If you add them up, it’s 27.9%.
But it turned out that the $33.5 million Colorado projected to collect in the first six months of 2014 was a little too optimistic. When the smoke cleared, Colorado was missing $21.5 million in pot taxes! One explanation is that all those taxes meant many smokers still buy on the black market. Getting numbers on that can be tough.