Wednesday, July 24, 2019

Marijuana Opportunity Reinvestment and Expungement (MORE) Act won't deliver

The Marijuana Opportunity Reinvestment and Expungement (MORE) Act, introduced July 23, 2019 simultaneously by House Judiciary Committee Chairman Jerold Nadler (D-NY) and U.S. Senator Kamala Harris (D-CA), is a major step toward a just and logical marijuana policy in the United States. A central feature of the legislation is the creation of a Community Investment Grant Program to benefit those communities and individuals who have been hurt by marijuana prohibition.

Specifically, the Community Investment Grant Program would provide "eligible entities with funds to administer services for individuals most adversely impacted by the War on Drugs, including—
     (1) job training;  
     (2) reentry services;
     (3) legal aid for civil and criminal cases, including expungement of cannabis convictions;
     (4) literacy programs;
     (5) youth recreation or mentoring programs; and
     (6) health education programs."

This is good stuff, but the grant program is funded by an "Opportunity Trust Fund" that is funded by a tax on all legal cannabis products (except for medical cannabis). The tax is set at 5 percent of the price of the cannabis product is sold.

Taxing is important and hard. Mark Kleiman wrote an excellent analysis of the issues involved in drug taxation in his 1992 treatise, Against Excess, pp. 69-80. Taxes are designed primarily for revenue, but influence behavior. Taxes can reduce unwanted behaviors, but can lead to evasion. If a tax is hard to collect and easily evaded that is counterproductive. Excessively high taxes, such as the infamous 1937 tax of $100 per ounce of marijuana if transferred to a person who was not registered as a physician, etc. was intended as a prohibition. (For comparison, a new Ford sedan cost $850.)

Taxing the price seems stupid to me, completely aside from the question of whether this percentage is the right amount.

First, we have seen that in the states, such as Washington and Colorado, that have first legalized retail sales of marijuana, that the retail price has been steadily dropping. Once this law takes effect, it is likely that the source of funds for the program is going to start shrinking. If we believe that the Community Investment Grant program is a good idea and needs to be funded, relying on a tax that is going to produce less revenue over time is not a good idea. Relying on the price of marijuana that is going to be declining means that the remedial effects of this program will shrink, not grow. 

Second, we need to think about the impact of the taxation on behavior, i.e., on the consumption of THC and how high people are getting. As a public health matter, using the tax to reduce the amount of intoxication is a good idea.  For the millions of recreational users -- once a week or so -- the amount of the tax will be negligible. But for those who use many times a day, the taxation becomes a more serious way to influence behavior by both depressing use or encouraging entry into treatment if use is problematic. Taxing the volume of THC being sold is the best public health approach.

Of course higher taxes are not "free." A tax that is easily and widely evaded is a problem, and collection can be challenging.  If there is wide disparity in the state tax rates on cannabis products, interstate smuggling of cannabis will become like the interstate smuggling of low-taxed cigarettes.

Thus, third, the tax should be imposed at the point of production, not at the retail level, where evasion is easy.

There is extensive evasion of high state and city taxes. In Chicago, according to a 2010 paper, as much as 3/4 of the cigarettes consumed in Chicago were obtained outside the city to avoid paying a $2.68 per pack tax. 

In New York City, the current combined city and state tax on a package of 20 cigarettes is $5.85. Last year, the Mackinac Center for Public Policy estimated that 56% of the cigarettes consumed in New York State were smuggled and the state lost $1.5 billion in tax revenue.

And, as we saw with Eric Garner, who was killed by New York police officer Daniel Pantaleo on the suspicion of selling "loosies" (single, untaxed cigarettes), the enforcement of these taxes can range from erratic to catastrophic.

Taxing at the retail level is counterproductive and potentially dangerous.

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