Taxation clouds marijuana debate

Medical marijuana, and its attendant policy cluster of drug legalization, has historically faced a thorny road, even in sympathetic States. The various financial interests, colorful bipartisan coalitions on both sides of the issue, and varying media portrayals of drug use as either horrifically destructive or fantastically liberating/hip make drug politics a thorny path for political figures to navigate, to the point that even President Obama felt the need to hastily denounce the idea of drug legalization.

Meanwhile, voting coalitions that coalesce around the issue often fail due to attacks by the opposition that tar them as all secret drug users or apologists for urban crime. To say that the issues surrounding drug legalization are sensitive would be almost as unnecessary as saying that the politics of tax policy almost always manage to be simultaneously byzantine and oversimplified. 

So, needless to say, if the two issues ever became connected, the result would be nuclear grade political warfare, almost certainly ending in suicide for one or both parties. Yet, in the midst of what is already set to be one of California’s most contentious ballot-related battles, that result appears to be precisely what will happen if the Palm Beach City Council gets its way. According to the Long-Beach Press Telegram:

     “The City Council took a step Tuesday night toward putting a marijuana tax measure on the November ballot that would levy a 10 percent tax on the recreational drug and a 5 percent tax on medical marijuana. City officials don’t know how much revenue the tax would raise, but they’re looking for every penny to help eliminate an estimated $18.5 million budget deficit in the next fiscal year. “ 

This policy decision itself is nothing spectacular – one of the advantages which fiscal analysts project would accrue from the legalization of marijuana is the ability to tax what is, by some accounts, one of California’s strongest cash crops. According to the argument, this would open the floodgates for revenue raising, while also providing the state with a much-needed business boost. 

There are problems with this argument, however, which could divide the traditionally Left-and-libertarian-leaning legalization coalition. Libertarian activists for drug freedom see the struggle as but one cog in a massive fight to remove excessive paternalistic control over not just peoples’ health, but also over anything they could choose to spend money on. Left-leaning drug advocates, meanwhile, often view the issue as more isolated, and may even support legalization because of the increased revenues that can be taken in by the state. What is not clear is whether the former group would be able to stomach working with the latter, when it is clear that the latter could turn on them the instant this particular fight is won. 

At the level of academic tax policy, moreover, the argument that marijuana legalization would lead to increased revenues from the drug’s sales doesn’t necessarily follow. To be sure, revenues would be gained, but it’s not clear whether those revenues would match the economic growth that can come from the personal wealth which drug suppliers can invest. Moreover, if overtaxed, the industry already possesses an ample capacity to move underground and avoid the taxation system, and has enough ties to corruption and organized crime to escape taxation altogether, even with being technically legal.

On the other hand, while sales taxes might not significantly increase revenue, business would almost certainly improve in California if the drug were legalized, not least of all via increasing tourism, which might give a boost to California’s stagnant economy, thus obviating the need for the state legislature to squeeze revenue from wherever it can find it. 

These questions can and should be answered, but the trouble is, that given the extremely contentious nature of both tax policy and drug policy, the debates over them are likely to generate far more heat than light. Californians are in for a knock-down, drag-out political fistfight once these issues are perceived as linked, and given the many local ordinances sprouting regarding marijuana use, they almost certainly will see them linked.

Voters are simply advised to keep their heads.