Saturday, October 1, 2022
The Urban-Brookings Tax Policy Center this past week released this notable extended report titled "The Pros and Cons of Cannabis Taxes" authored by Richard Auxier and Nikhita Airi. Here is the report's abstract:
While 19 states have enacted a tax on recreational marijuana, there is no standard cannabis tax in the US the way there is an alcohol tax, cigarette tax, and gas tax. Instead, governments use three different types of cannabis taxes: a percentage-of-price tax, a weight-based tax, and a potency-based tax. Different states use different taxes and some states levy multiple taxes. Additionally, some state and local governments levy their general sales tax on the purchase of marijuana. This report is a guide for policymakers, journalists, and engaged community members hoping to better understand cannabis tax debates. It details each state’s cannabis tax system, provides data on cannabis tax revenue, explains the pros and cons of different cannabis taxes, and discusses the various goals of those taxes.
And here is part of the report's conclusion:
After nearly a decade of legal and taxable sales, it is clear that cannabis taxes can generate hundreds of millions of dollars in annual revenue for state and local governments. However, recent revenue declines in five states, each with a distinct cannabis tax system, underscore that revenue growth is not limitless and that various factors can affect what governments collect from year to year.
We know that overly complex and burdensome tax systems, like the pre-reform taxes in California, can depress the evolution of legal marijuana markets. However, we also know that some states, like Washington, can create highly effective markets even with relatively high tax rates.
We know that taxes based on weight and potency could possibly help policymakers achieve important goals like producing more consistent tax revenue and discouraging the use of possibly dangerously potent products. However, we also know that these taxes can drive up costs and create significant burdens for legal sellers....
Ultimately, as new states enact taxes on marijuana and states with existing tax systems consider reforms, policymakers should use existing evidence to make informed choices that align their goals with their taxes. But state and local cannabis tax policy remains anything but simple and predictable. Policymakers across the country should also prepare to monitor, study, and reform these taxes as events develop and we learn more.