Marijuana Tax for Good? It’s Still Regressive

(Marijuana plants growing at a dispensary)

The city of Aurora, Colorado has chosen to spend some of its tax revenue from marijuana sales on a worthy project.

City officials announced plans to spend $1.5 million of the projected $4.5 million in marijuana tax revenue it will take in over the next two years on combatting homelessness and supporting other nonprofit causes. To kick off the new initiative, Aurora City Council members voted to direct $220,000 to the Colfax Community Network to cover general operating expenses. The vote also included the provision of funding for Comitis Crisis Center and Aurora Mental Health for homeless outreach.

Los Angeles is considering a similiar approach with a tax on revenue from medical marijuana, which – should the proposed measure pass – could generate up to $16.7 million annually. If the state fully legalized marijuana as Colorado, Washington, Alaska, and Oregon have done, the resources generated for anti-homelessness programs in California would greatly expand beyond that figure.

While the emergence of a brand new revenue stream directed toward social good causes is objectively positive, the fact remains that the resources stem from a regressive tax. Sin Taxes – as tariffs that tax habits considered unhealthy by the general consensus are known – have attracted disapproval from across the political spectrum for their negative impact on poorer Americans.

Along with other forms of regressive taxation – such as sales taxes – these tariffs disproportionately harm economically disadvantaged citizens, who are less equipped to cope with the larger hit on their finances that certain consumer behaviors cause. Smokers, drinkers, and gamblers are the traditional targets of such taxes.

A recent trend also includes higher taxes on sugary beverages and fatty junk foods.

Ostensibly, these taxes are intended to alter behaviors that have a negative effect on society while generating revenue to account for the deleterious results that stem from those behaviors. But as a trio of economists discussed in an op-ed for U.S. News, the taxes do not quite achieve their supposed aim:

[T]he orthodox justification for sin taxes was that they would reduce the costs smokers, drinkers, and gamblers impose on others—drunk driving, exposure to secondhand tobacco smoke, and losing the family paycheck at the craps table. But that rationale was a nonstarter because of the relatively small impact these taxes have on the sinful consumers’ behavior. Such taxes may “nudge” consumption in the desired downward direction, but bad habits are hard to break.

As these and other economists argue, there is evidence that these taxes produce a positive social benefit. And while wealthier citizens can simply stomach the higher cost of their favorite bad habit, poorer citizens are financially sapped. Indeed, the further immiseration lends itself to a feedback loop, in which people living in an increasingly stratified economy with less money turn to their bad habits for solace.

A widely-discussed study from last year supported these claims, finding that white working Americans have seen a decline in life span, resulting in part from greater alcohol and drug abuse attributed to economic insecurity.

The tax on marijuana in Colorado is actually lower than the rates applied to alcohol and gambling. Nonetheless, the simple fact that the burden of the tax – like all consumption taxes – falls primarily on the poor gives one pause for thought: Why do so many initiatives aimed at helping the poor fall largely on the backs of poor taxpayers?

The increase in revenue for the homeless in Aurora is good news, but this qualified success should not halt efforts to design and implement more equitable, just alternatives to public social good fundraising.

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