Should Libertarians Compromise with Taxing Marijuana?

by | May 4, 2021

Should Libertarians Compromise with Taxing Marijuana?

by | May 4, 2021

Marijuana freedom is a good thing. The taxation of marijuana is a bad thing. Unfortunately, owing to the greed of spendthrift politicians, it looks as though we will have to take the good with the bad or not at all.

Now, this does not mean that smoking marijuana is “good.” It just means that the freedom to smoke marijuana — and be responsible for any negative consequences that may come with it — is a good thing.

On the federal level, a bill (H.R.3884) to decriminalize marijuana that would have removed “marijuana from the list of scheduled substances under the Controlled Substances Act” and eliminated “criminal penalties for an individual who manufactures, distributes, or possesses marijuana” languished in the U.S. House of Representatives for a year and a half before it finally passed on party lines at the end of 2019. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, which was never voted on in the Senate, would also have imposed a 5 percent federal tax on cannabis products.

On the state level, although there are thirty-five states where the medical use of marijuana is legal, there are only fourteen states (plus the territories of the District of Columbia, the Northern Mariana Islands, and Guam) where the recreational use of marijuana is legal: Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, Oregon, Vermont, and Washington.

Make that seventeen.

The legislatures in New York, New Mexico, and Virginia recently passed bills to legalize the recreational use of marijuana. That is unusual because the path to marijuana legalization in most states has been ballot initiatives.

In Virginia, the legislature last month passed HB 2312. The governor recommended an amended version of the bill, to which the legislature then agreed by an even greater margin than it did to the initial bill. I wrote about the efforts to legalize marijuana in Virginia last month.

Unfortunately, the marijuana legalization legislation comes with a 21 percent excise tax on marijuana in addition to the state’s 5.3 percent sales tax. Local municipalities are also allowed to add an extra 3 percent tax.

In New Mexico, the legislature on March 31 passed the “Cannabis Regulation Act” by a vote of 22-15 in the Senate and 38-32 in the House, which then concurred with the senate amendments. The majority of Republicans voted against the bill, which the Democratic governor, Michelle Lujan Grisham, signed into law on April 12. The measure allows:

  • the possession of a maximum of two ounces of marijuana, 16 grams of concentrated marijuana, and 800 milligrams of edible cannabis.
  • each person to grow a maximum of six mature and six immature marijuana plants, with a limit of 12 mature plants per household.
  • local governments to pass laws regulating certain commercial activity and density.

The legislation establishes a Cannabis Control Division to regulate and license commercial marijuana activity, which can begin no later than April 1, 2022.

The governor also signed into law a companion bill to provide for the expungement of certain marijuana-related convictions for activities made legal by the marijuana legalization bill. She praised the bills, “saying they would bolster the economy and help those who have been harmed by the ‘country’s failed war on drugs.’”

Unfortunately, the legislation also taxes marijuana sales at a rate of 12 percent through July 1, 2025, which increases annually by one percentage point until it reaches 18 percent in 2030. One-third of the revenue will go to the city in which the sale occurred, one-third to the county, and the other third will be distributed by future legislation.

In New York, the legislature on March 30 passed the “Marijuana Regulation and Taxation Act” by a vote of 40-23 in the senate and 100-49 in the House. Again, the majority of Republicans voted against the bill, which the Democratic governor, Andrew Cuomo, signed into law on March 31. The measure:

  • allows possession of a maximum of three ounces of marijuana.
  • allows each person to grow a maximum of three mature marijuana plants with a cap of six mature plants per household.
  • creates expungement and resentencing processes for anyone convicted on a charge that is no longer a crime under the new law.
  • allows for cities, towns, and villages to pass local laws prohibiting certain retail establishments and regulating certain aspects of their operation.
  • contains a process for local voters to overturn local legislation banning recreational marijuana retail.
  • establishes the Office of Cannabis Management to license and regulate recreational marijuana retail and distribution. State officials estimate legal recreational marijuana sales will begin in 18 months to two years.

According to the New York Times,

There will be licenses for distributors who would sell cannabis wholesale to retailers, including dispensaries where individuals will be able to buy cannabis products and “consumption sites” where people will be allowed to smoke or ingest the products.

The tiered system of licenses is meant to create a division among those who produce, wholesale and retail the products, like in the alcohol market. Most businesses would only be allowed to have one type of license to avoid a few players from consolidating the entire market.

Half of business licenses are supposed to be issued to “social equity applicants”; that is, “people from communities with high rates of marijuana enforcement, as well as businesses owned by women and minorities, distressed farmers and disabled veterans.” Priority will be given “to applicants who have a marijuana-related conviction, or a close relative with such a conviction.”

Unfortunately, the legislation also institutes a 13 percent excise tax on retail marijuana sales and enacts a tax ranging from $0.03 to $0.08 per milligram of THC for wholesale to dispensaries. Forty percent of the tax revenue from marijuana sales will be steered to communities “where Black and Latino people have been arrested on marijuana charges in disproportionate numbers.” The new law is expected “to eventually generate $350 million in yearly tax revenue” and create new businesses and thousands of new jobs.

Although libertarians oppose tax increases of any kind, opposing these imperfect marijuana legalization bills is a textbook case of making the perfect the enemy of the good.

Clearly, marijuana should be legalized, but not taxed. The reality, however, is that state legislators, just like members of Congress, because they have an insatiable desire to spend the taxpayers’ money, are simply not going to legalize marijuana without taxing it. It is just not going to happen.

Just look at the taxes on alcohol and tobacco.

The federal tax on alcohol is $18 per barrel for beer, $1.07 per gallon for wine, and $13.50 per gallon for distilled spirits. The federal government collects approximately $1 billion per month from these taxes. The federal tax on cigarettes is $1.01 per pack.

Each state then levies its own taxes on alcohol and tobacco. In Washington State, distilled spirits are subject to a $32.52 per gallon tax. In New York State, the tax on cigarettes is $4.35 per pack.

It is unfortunate that Americans must take the freedom to use alcohol and tobacco (the good) with taxes on alcohol and tobacco (the bad), but that’s just the way it is. Why would anyone think that marijuana would be any different? It shouldn’t be the case, but that’s just the way it is.

Would any users of alcohol and tobacco say that they would rather have them to be illegal than to pay taxes on them? Of course not. So again, why would anyone think that marijuana would be any different?

State legislators should be voting to legalize marijuana because of their respect for individual liberty, property rights, the free market, and limited government. There may be a handful of exceptions, but when have state legislators ever voted for or against anything strictly on the basis of those things? I think the best we can hope for, in today’s political climate, is for marijuana to be treated by government just as alcohol and tobacco are: regulated and taxed. Libertarians should, of course, strive to reduce those regulations and taxes just as they should currently strive to reduce regulations and taxes on alcohol and tobacco. But waiting for the ideal marijuana legalization bill or ballot initiative means that marijuana legalization will never happen.

In a free society, we would not have to take the good with the bad. But since we don’t live in a free society, it appears that taxes are the price we have to pay for marijuana legalization.

This article was originally featured at the Future of Freedom Foundation and is republished with permission.

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About Laurence Vance

Laurence M. Vance is a columnist and policy adviser for the Future of Freedom Foundation, an associated scholar of the Ludwig von Mises Institute, and a columnist, blogger, and book reviewer at LewRockwell.com. He is also the author of Social Insecurity and The War on Drugs Is a War on Freedom. His newest books are War, Christianity, and the State: Essays on the Follies of Christian Militarism and War, Empire, and the Military: Essays on the Follies of War and U.S. Foreign Policy.

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