Marijuana legalization was a hot topic at the recent meeting of the National Governors Association in Washington, for obvious reasons — among them the prospect of raising much-needed revenue by taxing pot sales. “With all the bad weather we’ve had back home and all the potholes, we ought to have the revenue go to infrastructure — ‘pot for potholes,’ ” Rhode Island Gov. Lincoln Chafee, (I) said.
Such an experiment is underway in Washington and Colorado, so it’s noteworthy that John Hickenlooper, the latter state’s Democratic governor, did not echo Chafee’s enthusiasm about the tax bonanza. “Going out and getting tax revenue is absolutely the wrong reason to even think about legalizing recreational marijuana,” he said, since it puts a state in the position of benefiting from use of a harmful substance — even if it’s not the most harmful.
Of course, government is already in that position, due to the levying of “sin taxes” on tobacco and alcohol. Hickenlooper could have bolstered his moral argument with a more practical political one: Over time, the tax take from legal pot probably won’t live up to the hype because producers, distributors and consumers could develop into a powerful lobby opposed to taxation.
That’s the lesson of post-Prohibition federal excise taxes on alcoholic beverages, which have gone up just once for beer and wine and twice for distilled spirits over the past 60 years. As a result, excise tax rates on alcohol are “far lower than historical levels when adjusted for inflation,” as the nonpartisan Congressional Budget Office puts it in a recent report. The erosion of alcohol taxes is a tribute to the alcoholic beverage industry’s clout on Capitol Hill.
And U.S. breweries are pushing a bill that would erode them further, by halving the $18-per-barrel excise tax that large brewers pay and lessening the more modest tax on microbreweries. The proposal has 91 co-sponsors in the House, according to a recent National Journal account. The beer lobby says it’s all about helping the industry create jobs.
The bill’s prospects for passage are dim in the short run, which is good, since what the country needs is a higher alcohol excise tax to help restore its lost value, trim the deficit and account more fully for the public health and safety costs of alcohol abuse. Also, the tax should be applied more uniformly across all beverages, as opposed to varying rates for liquor, beer and wine. The CBO says that taxing them all at $16 per proof gallon, a standard measure of alcohol content, would raise $64 billion over 10 years.
Our position is that marijuana should be decriminalized, but states in the D.C. area should go slow on any broader legalization until the results of the Washington and Colorado experiments are in. Obviously, some tax revenue from pot sales is better than none, which is what we get now. However, the likelihood of a smaller-than-advertised tax windfall is one of the many unintended consequences of legalization that lawmakers must weigh before they act.