Dude, don’t bogart our marijuana revenues
Paging Grover Norquist: Antitax anxiety has broken out on Beacon Hill, with some Democratic lawmakers suddenly professing concern about raising taxes on recreational marijuana as part of a needed set of reforms to the state’s new pot law. A proposal to levy a 28 percent tax on marijuana sales sparked an uproar, and House leaders suddenly yanked their version of the bill on Wednesday for further refinement, shortly before a scheduled vote. In the Senate, legislation was introduced Friday that left the tax at 12 percent, one of the lowest rates in any state that has legalized pot.
But marijuana should be taxed, good and hard. The possibility of new revenue was one of the selling points of Question 4, the successful ballot question that legalized marijuana last year. The 28 percent figure isn’t a magic number. But however legislators adjust the rate as they forge consensus on the marijuana legislation, they needn’t give too much ground to the weed industry now. Once the legal market is up and running, raising the tax will become far more difficult and an opportunity to bolster state and municipal finances will have passed.
“You’d rather start high and have to come down,” said Mark J. Cusack, the House chair of the legislative Marijuana Policy Committee, who supports the 28 percent tax. From a political standpoint, he’s undoubtedly right. As Cusack points out, there’s also a sound public policy reason to raise the tax in the way the House legislation would. The proposal would raise the component of the marijuana tax earmarked for the host town or city from 2 percent to 5 percent, a boost that is designed to incentivize municipalities to allow marijuana retail so that retailers don’t cluster in poorer communities. “Five percent, that’s real revenue,” he said: cash that it’ll be hard for even wealthy communities to turn aside. The hike addresses a legitimate worry, since 19 towns in Massachusetts have already banned or initiated bans on retail pot.
Opponents of raising the tax haven’t offered convincing objections. Their first rationale — that 12 percent is what voters favored, so on principle the Legislature shouldn’t change it — falls flat, considering the willingness of even tax-hike opponents to alter other aspects of the marijuana law. Senator Patricia D. Jehlen cites the popular mandate when it comes to the tax rate, but her Senate bill overturns what voters supported in other ways — almost all of them for the better, including the elimination of the unfair head start that the referendum gave to medical marijuana firms. There’s nothing wrong with that, and tinkering with the tax rate would also be perfectly compatible with respecting the thrust of the voters’ will, which was to legalize marijuana.
The second justification, that the 28 percent tax would encourage the black market, seems to be scaremongering — reefer-tax madness, as it were. It’s true that all taxes encourage black markets to some extent (raise the income tax too high, and more people work under the table), but no empirical data suggests that the 28 percent versus 12 percent versus some other rate would keep crooks in business.
“What are the perfect rates that minimize black market issues and generate sufficient revenue?” asked Paul Seaborn, a business professor at the University of Denver who studies the marijuana industry. “No states seem to have exactly figured out these things.”
Colorado’s experience, he said, is that some users will continue to buy illegally rather than pay a premium for legal products, but that over time the advantages of a legal marketplace tip the scales. Colorado, with a combined excise, state, and local tax rate of around 30 percent, has actually exceeded its revenue estimates, and is now generating enough money through marijuana taxes to pay for the marijuana regulatory structure and leave some left over for other needs.
Revisions to the marijuana referendum that passed in November are entirely appropriate, so long as they don’t undo legalization. Whatever the final version looks like, a higher tax rate that boosts the percentage received by local governments belongs in the legislation.