Isn’t there something odd about the tax arguments tied to the proposed initiatives on cigarettes and marijuana?
One of the arguments for raising taxes on cigarettes is to discourage their use. Raise the tax and fewer people will want to buy the product. Of course, some will seek cigarettes in the black market or online.
One of the arguments for legalizing marijuana is to tax it as a source of new revenues. No talk of using taxes as a disincentive here.
So the theory goes, taxing cigarettes might drive some people to the black market while legalizing and taxing marijuana would bring users into the sunshine away from illegal activity.
Because marijuana is not taxed now, legalizing it and taxing it will immediately bring in additional revenue. An increased cigarette tax will also boost revenue.
But if cigarette use diminishes over time then the tax revenue will fall off, especially if the new tax increase further discourages more smoking as proponents say they want.
There is a history here. Fewer people are smoking. Fewer are paying taxes on the product. During the 2008-09 fiscal year cigarette tax raised $555.4 million. In the 2013-2014 fiscal year the tax take dropped to $460.6 million.
Will the marijuana tax remain a strong revenue source after the initial windfall?
There may be momentum behind legalizing marijuana with ballot successes in Washington and Colorado but there is still opposition to the idea.
A tax increase on marijuana certainly would have the same economic effect as a tax increase on cigarettes.
We could come full circle in a short time (assuming a marijuana initiative passes). An activist might offer an initiative to raise the tax on marijuana to discourage its use and shrink the revenue take from the tax.