August 5, 2014

"Otherwise, tax rates on recreational marijuana will be easily subverted."

The last sentence of the "Better Way to Tax" section of the NYT editorial "Rules for the Marijuana Market," the newest entry in its series promoting the legalization of marijuana.

Having read that section, I think the sentence works better without the word "Otherwise."

The editorial author — Vikas Bajaj, who specializes in economics —predicts that the price of marijuana will crash  when it is legal, which will make the tax, if it's a percentage of the sales price, very low. And he portrays the low price as a problem not because the lure of tax money might prompt legislators to legalize, but because low prices will entice consumers to use too much marijuana. To bolster the price and thus stave off drug dependence, Bajaj says we'll need a heavy excise tax.

But heavy taxes lead to tax evasion, right? Bajaj does acknowledge the incentive to go for medical marijuana — which is tax free — but he says nothing about the black market, which is also a way to avoid taxes. We already have a flourishing black market, and the product is an easy-to-grow weed.

Bajaj proposes cracking down on the doctors who give out too many recommendations for medical marijuana, but this hasn't worked out well even in the current legal environment with the federal law ban. If it hasn't been possible to control doctors, how will the black market be controlled? The government's inability to control the black market is key leverage for "ending Prohibition" — as the Times likes to put it — so what can be said on this point? Read the column. The answer is: Nothing.

There's another section of the editorial titled "Don’t Market to Minors." The term "minors" is used even as the ban is proposed to extend to those all the way up to age 21. The under-21 consumers are already a big part of the black market, and they will remain excluded from the legal market. This group of consumers will — along with heavy taxation — keep the black market going. And, remember, the price is going to crash, and it's a weed that can be grown at home. Bajaj just talks about restricting advertising by the legal marketers.

This editorial is presented as if the problems can be carefully thought through and solved through regulation. This is the greatest delusion about government. I'd like to believe that if experts analyze things they can propose reasonable regulations that will generally benefit all of us, but so often the experts participate in the political game of lulling us into believing this lovely thing that we'd like to believe. But the gaps here are so obvious. I'm not lulled.

33 comments:

Matthew Sablan said...

"The editorial author — Vikas Bajaj, who specializes in economics —predicts that the price of marijuana will crash when it is legal, which will make the tax, if it's a percentage of the sales price, very low."

-- Because that's what has happened with cigarettes and alcohol. I predict that the economist will be wrong, because no one is going to only key a tax on marijuana to the sale price.

Ann Althouse said...

"because no one is going to only key a tax on marijuana to the sale price"

Which is why Bajaj and this post go on to talk about a suitably heavy excise tax.

Hagar said...

Because the New York tobacco taxes work so well?

Fernandinande said...

We already have a flourishing black market, and the product is an easy-to-grow weed.

A "weed" is a plant you don't want, and it's not particularly easy to grow*: RAND estimated a price of $34/ounce might result from a free market...considerably more expensive than tomatoes or sunflower seeds.

*Yes, wild hemp plants abound - anyone buying them?

Article: Beyond keeping marijuana out of the hands of minors, a good regulatory system has to limit the increase in drug abuse that is likely to accompany lower prices and greater availability after legalization.

No, it doesn't have to do anything.

It should protect consumers from both dangerous and counterfeit products, reducing the physical risk from a psychoactive substance.

Adulteration and such almost never happen, even under prohibition. 'Twas propaganda.

And a well-regulated system should undermine and eventually eliminate the black market for marijuana, which has done great damage to society.

Quit meddling in other peoples' business = no black market.

MadisonMan said...

How do you tax something you can grow in your own house, or in your back yard? Sure, some states prohibit that -- Washington -- but how enforceable is it when the product grows like a weed? I don't know what's growing in my back yard.

lgv said...

Why is it that economists can ignore or minimize certain economic reactions, when they are so easily recognized by others? I think this person belongs to the regulatory dreamers.

"Lawmakers should not repeat the mistakes they made on alcohol in recent years, taxing it too lightly and allowing the industry to become highly concentrated"

This is false cause and effect. There is no credibility to this statement.

EDH said...

But heavy taxes lead to tax evasion, right? Bajaj does acknowledge the incentive to go for medical marijuana — which is tax free — but he says nothing about the black market, which is also a way to avoid taxes. We already have a flourishing black market, and the product is an easy-to-grow weed.

If Bajaj has his way with taxes, it means more fat black men will be choked to death by police.

After all, it was the $6 per pack NYC tax on cigarettes that prompted Eric Garner to sell loose cigarettes on the black market.

Does Bajaj and the NYT want to replace a drug war with tax war against blacks?

SGT Ted said...

What will also happen is tax avoidance by people growing their own and sharing amongst their friends and acquaintances. I will be doing that myself. It can be grown just as easily as tomatoes.

The main problem is the view that it is always OK for government to make money for doing nothing, other than spending ever more of it and always looking for the next pile of money to loot, rather than live within their budgets.

Meade said...

" I don't know what's growing in my back yard. "

MadisonMan is a WIMBY.

madAsHell said...

You can't tax what I grow in my yard.

Well, you can, but it is difficult to enforce.

kcom said...

"This is the greatest delusion about government."

Somehow people seem to forget that the "government" is staffed by people like Lois Lerner and other "experts" who are either incompetent or have their own agenda. But somehow you group a bunch of incompetents together and they become an all-knowing, extremely wise government. By magic, apparently.

FleetUSA said...

Government is always creating unintended consequences. This M/J is just a distraction from all the other problems - another incentive for the young (and not always clear thinking) to vote for the Dems.

Lucien said...

One of the practical points in favor of legalizing marijuana is that the price will fall so far that racketeers will not be able to make any money selling it.

Of course if the type of racketeers you favor are government racketeers, this is a bug, not a feature.

Fernandinande said...

SGT Ted said...
I will be doing that myself. It can be grown just as easily as tomatoes.


I note "will be" rather than "have done", so guess again.

Zeb Quinn said...

It's almost axiomatic that when a product goes from being illegal to legal, its price skyrockets upwards. It's a demonstration of the law of supply and demand. Demand goes up and supplies are limited. We see that in Colorado and Washington right now.

Some economist.

Paul said...

Again the ignorance is truly amazing. One healthy pot plant can supply a tie-dyed dreadlocked stoner for most of a year. The only thing that kept weed expensive was it's illegality, but even still it was always proportionally cheaper than booze or cigarettes.

A friend of mine grew a few plants last year in his backyard. he smokes some everyday and still had so much left over he wound up giving away most of it.

MadisonMan said...

MadisonMan is a WIMBY.

(laugh) Not quite. Although I don't know what's growing back there, I do know what isn't.

Do Japanese Beetles like marijuana? If I grow marijuana will they eat that instead of roses and raspberries? Here's hoping!

Hagar said...

You can also grow tobacco in your back yard - even in Madison, WI.

Abdul Abulbul Amir said...


The simple solution is no sin tax, just state/local sales tax at the same rate as any other product. Black market gone as there is little incentive to cheat.

Revenant said...

Oh noes, taxes being subverted! How will the bureaucracy fund its lucrative benefits?

mccullough said...

Excise taxes might work somewhat on goods sold to the wealthy users.

So there'll be a two-tier market. A legal one for the wealthy, and an illegal one for everyone else.

Ann Althouse said...

"A "weed" is a plant you don't want, and it's not particularly easy to grow..."

I heard it's easy.

cubanbob said...

Vikas Bajaj is as much of a real economist as Obama a constitutional law scholar. Both ned to find another line of employment if they wish to be taken seriously.

So the jist of Bajaj's nattering boils down to keeping MJ illegal since all the excessive taxation will drive most of the newly legalized MJ market back underground.

Anonymous said...

Lolz! Althouse is not lulled, or gulled.

The NYTimes wants to ease up on the obviously failed drug war, then continue to nudge people toward correct behavior through high taxes. This being New York, the tax will rise until much of the supply is black market. The idea of leaving people to learn for themselves by suffering the consequences of their own foolishness, only regulating harm to other people like driving impaired, escapes them.

Which means the gangs, the cops, the SWAT teams, the legal aid lawyers, and the prisons will still be needed.

cokaygne said...


Lawyers, I ask you, could not the government use Wickard vs. Filburn to prohibit grow your own?

Also, there are excise taxes on motor fuels, but they do not produce enough revenue to fund memorials to long-serving politicians and reward construction unions, so the pols are desperately casting about for more transportation revenue. Why? because the politicians make us drive fuel-efficient vehicles. Duh!

Mike said...

AA - Sure the headlines say it's easy but note how many of your results include the words "step-by-step" and then ask yourself, "Self, how many steps did it take to get those dandelions in my lawn?"

If your answer is less than one then you're already a step behind. And we're not even started on obtaining good quality seed, or water that has no chlorine in it, or deciding between indoor or out, or what medium in which to grow it, or preventing theft or...

cokaygne said...

Forget all the "liberal-conservative" amd Democratic-Republican" bullshit. There are three permanent political parties.

There is a political party/ideology established by the Massachusetts Puritans in 1630, punish anyone who is having fun by making fun illegal.

There is a political party/ideology established by Karl Marx in the mid XIX century, equalize wealth by punishing economic success. The economy produces inequality, therefore, let us abolish the economy.

There is a massive floating army of politicians called pragmatists who use government to reward themselves and their friends and punish their enemies. They will say and do anything to carry out their agenda, especially in an alliance of convenience with one of the two ideologies.

retired said...

Just went to a family reunion to see my brothers who seriously damaged themselves with chronic marijuana and heard stories of my sister's son who now addicted to it and has put his future at risk.

ALP said...

To compare tobacco and cannabis in terms of home growing....

...it is legal in all 50 states to grown one's own tobacco. Why is a much more dangerous, addicting and also heavily-taxed plant legal to grow while pot is not? I find that curious.

http://www.thetobaccoseed.com/

Balfegor said...

Easy way to drive out small-scale producers -- impose regulations on the manufacture and sale of marijuana (in the name of safety). Require inspections, certifications, lab tests, etc. all in the name of consumer safety. Or perhaps "safety." The same sort of rubbish the FDA tried on cheeses recently. Catch a few and fine them into oblivion, and raise the costs of compliance so high only the Phillip Morrises of the world can afford to participate in the market.

There will still be a black market, sure, but the boot will be on the other foot -- marijuana will be legal, but the modern regulatory state will have made it expensive and driven out all the small producers.

M. Simon said...

The answer is easy. The taxes should be what they were pre-prohibition.

M. Simon said...

madAsHell said...

You can't tax what I grow in my yard.

Well, you can, but it is difficult to enforce.

================

You are engaging in interstate commerce - see Wickard vs Filburn

Sheila Seeds said...

People are going to get what they want to get. I think the legalization of a previously contraband item will only help the economy and consumer market to self-regulate. Especially when it comes to marijuana where there are scientifically proven medical benefits, there should be proper considerations made for the allowance of such substances.