Lessons from Alcohol Production for Legal Marijuana

marijuana plantAccording to an article in the New York Times, Colorado is getting fewer taxes from the sale of recreational marijuana than the state expected. The creation of a legal marijuana market has occurred within the context of states increasingly turning to sumptuary or “sin” taxes to close budget gaps.

As with marijuana in Colorado these taxes have not generated as much revenue as expected. High cigarette taxes have inevitably led to tax evasion and smuggling. Because sumptuary taxes have a public health component, as smoking has decreased so has revenue.

The issues that states have faced when taxing tobacco or gambling are similar to tax issues around alcohol production and use. During the Civil War when Congress debated tax legislation, some legislators sought to place the highest tax possible on liquor to discourage drinking.

Several years of high taxes led to widespread fraud, tax evasion, and reduced revenue. In the late nineteenth century evasion of federal liquor taxes continued, most often in the form of moonshine in the southern states.

Colorado taxes marijuana per dollar rather than per gram. Federal alcohol taxes are on the amount produced not the amount sold. Because marijuana was previously illegal in Colorado, public health advocates feel the greatest benefit from legalization has been a reduction in crime and an increase in public safety.

When repealing Prohibition became a serious option, policy experts saw both increased revenue and reduced crime as potential benefits. As states consider legalizing his sale of marijuana, alcohol taxation remains as an example.

( Inserting a link is not working in WordPress so here is the link to the New york Times article:

http://www.nytimes.com/2015/04/09/upshot/09up-marijuana.html?abt=0002&abg=0 )

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