David R. Henderson  

The Boston Globe's Case is Even Worse than Scott Sumner Says

Missing moods at the Boston Gl... Moving Across My Monitor...

Yesterday, co-blogger Scott Sumner wrote an excellent post taking on the Boston Globe columnist Renee Loth's weak case against marijuana legalization. (Her column is from April, but it's still relevant.)

The case is even weaker than Scott says.

Consider this segment of Loth's case:

As with legalized gambling, the states are in a competitive frenzy to hatch these golden geese before the market is saturated. It's beggar-thy-neighbor time, and no one wants to miss out. States are salivating at the prospect of easy revenue without the pain of raising taxes.

But marijuana revenues, like gambling income and other forms of "voluntary taxation," are a cheap, fractured way to fund public services. Instead of people contributing equitably to the common good, a smaller subset foots the bill. Sure, some people will smoke pot whether it's for sale at the 7-11 or not. But does the state need to endorse it, or -- worse -- come to depend on it?

Scott writes: "The endorsement comment is just silly." And he's right.

But notice something else: her discussion of taxes.

Loth rightly recognizes that legalizing gambling would raise tax revenues. And although the payers from whom these tax revenues would be taken would rather not pay them, they would prefer to pay low or even medium taxes on legal low-price marijuana than to pay high risk-freighted prices on illegal marijuana. Numerical example: Imagine that when marijuana is illegal, the price is $200 per ounce. Then it's made legal, with the kind of entry of firms that Loth envisions (in her words, the market is "saturated") so that the price falls to $100 per ounce. Then even a hefty $50 per ounce tax, even if all of it is passed on to consumers (as it would be if the supply curve is essentially horizontal), would cause the price to be $150 per ounce. So the buyers gain and the government gains.

But nooooo, we can't have that, says Loth. Why? Because people aren't contributing "equitably." In other words, she would prefer to purposely make some other people worse off with higher taxes on what they buy (sales taxes) or earn (income taxes) than to raise the same amount of revenue by raising no taxes but instead legalizing a good so that the revenues are taken from people who are better off paying the revenues than buying in an illegal world.

That's either ignorant or cruel, or both.

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CATEGORIES: Regulation , Taxation

COMMENTS (11 to date)
Jeff writes:
Instead of people contributing equitably to the common good, a smaller subset foots the bill.

Somebody ask her how she feels about progressive income tax rates.

Capt. J Parker writes:

Dr. Henderson said

"So the buyers gain and the government gains"
This does not mean there are no negative externalities created by pot legalization. Everyone in the debate acknowledges there are significant negative externalities to pot. This was the reason for making pot illegal in the first place and it is the justification for the significantly higher tax and regulatory burden proposed for the pot industry than that imposed on other commercial activity.

Valid reasons for legalization would be either a) we were wrong about the externalities or b) government is now much more capable of dealing with the externalities. No one is arguing a is true because no one is arguing that pot be taxed and regulated like any other commercial activity. Whole new regulatory and tax regimes must be created proponents say. That leaves us with b which, IMHO, is just plain wrong and does nothing to further the cause of personal freedom because it further entrenches this crazy notion that government regulation and taxation can solve any problem and is an essential part of any activity that is to be "allowed". We creep inexorably toward a system where "everything is prohibited except that which is explicitly taxed and regulated."

LD Bottorff writes:

Capt. Parker,
Please clarify what you mean by we were wrong about the externalities. I fear that a large number of people who oppose legalization simply believe that the cost of keeping marijuana illegal is negligible. It isn't.
I will support legalization until someone shows me that the cost of legalization is greater than the continued cost of keeping it illegal.
Millions of people are using marijuana and thousands of people are selling it to them. If you want to continue to put people in jail for something, you need to convince us that the externalities are very bad.

Glen Smith writes:

The tax revenue argument is why I sometimes think it should be kept illegal but not for the reason presented here. Government getting revenue scares me.

Chris writes:

Capt. J Parker,

I think you missed option c) Like prohibition, the externalities surrounding criminalization of marijuana are worse than the externalities of marijuana use itself.

James Hanley writes:

If the concern is externalities, as Capt. Parker argues, and if we set his argument on favorable grounds by ignoring the externalities of regulation that Chris rightly points to, we can still see that pot use has fewer external costs than another legal intoxicant, alcohol.

As my brother, who works in Yellowstone, where thousands of seasonal workers gather every summer, says, nearly all the problems are alcohol related: car accidents, vandalism, fights l, sexual assaults and young people falling into boiling hot springs in the middle of the night. The pot smokers may struggle to get to work on time (then again, so do the drinkers), but that's about all.

One could argue for outlawing both, of course, or one could argue for outlawing alcohol and legalizing pot, but on Capt. Parker's grounds one cannot plausibly argue for outlawing pot but not alcohol.

[My brother is a teetotaler uninterested in any drug but caffeine. I'm a drinker who's not interested in pot. Neither of us is arguing in our self-interest.]

Doug writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring this comment and your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

john hare writes:

The economics may be more lopsided than $200.00 an once vs $100.00 an ounce plus tax. Before (insurance company) mandatory drug testing for employment, a high percentage of construction workers did recreational whatever. And they talked. Apparently a couple of decades ago pot was $1,000.00 a pound in Florida, $250.00 a pound in Texas on the Mexican Border, $150.00 a pound in Mexico on the Texas border, and $25.00 a kilo in rural south Mexico where some of the guys came from.

It seems quite possible to me that the physical costs of growing and processing pot in a commercial operation could be in the single digit dollars an ounce. It could be like cigarettes at well over 90% taxes and profits in the retail environment.

Thaomas writes:

I things slightly different. For most people a bit of Marijuana or a bit of playing the lottery is harmless and obviously pleasurable.

While it might be nice if people used more of their desire to bear risk in investment markets, no harm done. But for some gambling IS harmful and it feels to some voters wrong and unfair to shift some of the ta burden to them, and more if one thinks that group is relative not well off.

Marijuana on the other hand seems completely harmless (although we may just not have seen a small grout ruining themselves financially smoking pot). Therefore taxing them does not seem wrong.

Of course the main reason for decriminalizing drugs is to avoid the evils of black market distribution chains and the costs of enforcing an unnecessary prohibition.

Jon Murphy writes:


"But for some gambling IS harmful and it feels to some voters wrong and unfair to shift some of the ta[x] burden to them, and more if one thinks that group is relative not well off."

Sure, but that could be said about anything: tobacco, alcohol, food, shopping (shopping addiction is a real thing), driving, investing, and countless other activities that are legal and taxed.

Radford Neal writes:

Capt. J. Parker write: "no one is arguing that pot be taxed and regulated like any other commercial activity".

This is not true. I would advocate that, for instance. I assume that it is the standard libertarian position, and is also shared by non-libertarians who have somehow escaped from the influence of drug war propaganda.

I don't understand the morality of "Putting people in prison for their personal choices is wrong, so let's not do that anymore, but we should take the opportunity to soak them for as much tax revenue as we can! After all, they'll prefer that to prison, so we can get away with it..."

Of course, objecting to legalization on the assumption that pot will be taxed heavily, and that wouldn't be fair, is even more ludicrous.

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