Taxation of Marijuana

In my post, “Intro-dub-tion,” someone commented, arguing that he/she does not believe marijuana has the ability to be taxed. From afar, the growth / production of marijuana and tobacco are similar industries. Like tobacco, marijuana can be grown by any person who wants to do so because it is just a plant. However, because companies and firms eliminate transaction costs (see “Creation of Jobs”) most would prefer not to incur the costs of producing their own plants. So corporations and companies like R.J. Reynolds produce the majority of tobacco and are heavily taxed. Since tobacco is an industry that is taxed, why couldn’t marijuana be taxed?

There could be many creative ways for the government to tax the consumption of cannabis. State governments: They could implement their own taxes on each gram purchased, similar to a gasoline tax which varies state to state. For those people who prefer to grow their own plants, seeds could be taxed with a similar tax as above. This would have marijuana join alcohol, gasoline, and tobacco to be another “sin tax” or good with an excise tax. Another method would be to have excise taxes on complementary goods of marijuana, ie. smoking paraphernalia. The increased amount of goods sold would increase the revenue brought in by sales tax. Even if the states were only to allow medicinal marijuana use, they could make money through charging people for a license to ensure their possession and use of marijuana is legal for medical conditions. Since California legalized medicinal marijuana, over two million dollars has been collected from medical use license fees alone. Businesses also require licenses to operate, which the state government could charge for.

Federal Government: The largest sources of income possible for the federal government from marijuana production are the corporate taxes. The government could tax the “taxable income,” which is the amount of income left over after most business costs are deducted. The amount of this money decides what percentage is gathered by the government. In addition to that, they can incur their own excise tax on marijuana production.

Below is a spreadsheet with estimated figures of the marijuana industry’s possible tax incomes. All percentages are estimated averages. The numbers, including monetary value of total marijuana consumed by Americans (which is the basis for all of her calculations), are based on this article from over five years ago in 2003. So logically, the numbers would undoubtedly be higher today following the logic that as population increases, the consumption of marijuana would grow proportionally. Also, this does not include the estimated taxes collected from complementary goods or fees gathered from license fees. Furthermore, the state government figures are approximated averages because state tax rates differ from state to state. As such, state government revenues would widely vary.

	State Government		Federal Government
Excise Tax (6%)	$13.2 million	Excise Tax (6%)	$660 million
Sales tax (8%)	$17 million	-------	-------
State Income Tax (5%)	$6.7 million	Corporate Income Tax (20%)	$1.1 billion
------	--------	FICA	$382 million
Cost of War on Drugs (only Marijuana's estimated cost)	$300 million	Cost of War on Drugs (only Marijuana's estimated cost)	$3.84 billion