Economix Blog: A Look at Taxing Marijuana

Anthony Bolante/Reuters

Here’s a thought for a tax increase that might at least break some of the tension in the room between President Obama and John Boehner: a marijuana tax.

It’s not as ludicrous an idea as it might seem. This week, Washington became the first state in the nation where marijuana is legal for recreational use. Colorado is set to follow its lead soon.

The fact that some states are starting to relax their marijuana laws got analysts at the Tax Policy Center thinking. What if the drug were legalized nationwide and taxed?

The center looked at two studies, one of which estimated that a marijuana tax could bring in $9 billion a year in state and federal tax revenues and save roughly the same amount on law enforcement. (The study made certain assumptions about price and demand, and applied taxes comparable to those on alcohol and tobacco, as well as income taxes on those making money in the legalized trade.) Another study, which used the approximate tax on cigarettes as a benchmark, estimated that a marijuana tax could bring in $1.4 billion to California alone.

Now, of course, $9 billion isn’t much. One percent of the country’s gross domestic product is about $150 billion. And this year’s deficit is about $1 trillion. The tax increases and spending cuts set to begin taking effect on Jan. 1 if Mr. Obama and Mr. Boehner aren’t able to agree on a plan to head them off add up to about $600 billion.

Is a marijuana tax a bit fanciful in the near-term? Probably. Federal prosecutors aren’t planning on making it any easier for these states to tax marijuana. In fact, the White House and the Justice Department have been considering whether to pursue legal action against Colorado and Washington to block their new marijuana laws.

Article source: http://economix.blogs.nytimes.com/2012/12/07/taxing-marijuana/?partner=rss&emc=rss