Should we tax pot?


Barack Obama is probably getting more letters than Santa Claus this year.

The transition office’s mailbox must be full of pleas: “Dear President-elect Obama: I really want a My Little Pony Pinkie Pie -- Love, Susie,” and “Dear President-elect Obama: I really want a Mustang hybrid model that will sell half a million units in the first year -- Love, Alan Mulally.”

In Philadelphia this week, the nation’s governors did everything but climb into Obama’s lap with their wish lists for money to build roads and bridges and schools. Gov. Arnold Schwarzenegger’s list alone runs to about $28 billion. Americans want healthcare reform and safe pensions and, truly, world peace.


But who’s coming up with the money for this? Do we think we can stick our bicuspids under the pillow and the national tooth fairy will leave $800 billion? No? Then what about legalizing and taxing one of our biggest, oldest vices?

That notion arose because Friday is the 75th anniversary of the end of a nationwide ban on a substance that millions of Americans broke the law and bought anyway: liquor. Criminalizing it turned out to have complications so enormous and expensive that in 1933 a new president, faced with a profound economic crisis, wanted it legalized and taxed again.

Now, as we’re desperately trying to reinvent the economy, should we consider marijuana?

We’ve dipped a toe in those waters already in California. Sales of medical marijuana are taxable -- $11.4-million worth for 2005-2006, the most recent (though admittedly murky) figures available.

How much more might we raise from the tons of now-illegal marijuana? When we tried to tax it decades ago, it wasn’t so much about raising money as about cutting the demand for dope. In 1937, a new federal tax added so much cost and red tape to purveying marijuana that even doctors were priced out of legally prescribing the stuff. Once pot was banned outright, the tax became a double-dipping opportunity for lawmen. They got you for possessing or selling and for not paying the tax too. In 1968, the feds busted a Santa Barbara couple with 600 pounds of marijuana -- and gave them a tax bill for $1,622,000.

Of course, by paying the tax, you would be confessing to breaking the law. Timothy Learywas busted for not paying a marijuana “transfer” tax, but the Supreme Court said the law amounted to self-incrimination and threw his case out.

However, if we keep charging a tax -- something above and beyond a sales tax -- but take away the criminality, we’d be win-win, right? We don’t mind paying “sin” taxes, or levying them, like Schwarzenegger’s plan to help beat the deficit with a new 5-cent-a-drink tax.

Marijuana is a huge component of the nation’s underground economy. A couple of years ago, the legalize-it forces estimated that the U.S. marijuana crop was worth $35 billion a year. California’s share of that was $13.8 billion.

If the number is even half that, any tax windfall, on top of money saved by not prosecuting marijuana crimes, would mean a bonanza, wouldn’t it?

Sacramento would be doing the backstroke in black ink. With all the new parks and health clinics, we’d have more ribbon-cuttings than a baby shower. Is this just a pipe dream?

Rosalie Pacula says that in all likelihood, yes. She’s a senior economist at the Rand Corp. and co-director of its drug policy research center. Here’s how she burst my bubble:

First, you have to consider that legalizing it would have its own costs. Recent research, Pacula says, shows marijuana to be more addictive than was thought. Because marijuana is illegal, and because its users often smoke tobacco or use other drugs, teasing out marijuana’s health effects and associated costs is almost impossible. And more people would smoke it regularly if it were legal -- Pacula estimates 60% to 70% of the population as opposed to 20% to 30% now -- and the social costs would rise.

She takes issue with figures from Harvard’s Jeffrey Miron, among others, who says that billions spent on enforcing marijuana laws could all be saved by legalization. Rand’s research, Pacula says, finds that many marijuana arrests are collateral -- say, part of DUI checks or curfew arrests -- and many arrestees already have criminal records, meaning they might wind up behind bars for something else even if marijuana were legal.

Legalization also wouldn’t do away with pot-related crime entirely. There would likely be a black market, just as there is in other regulated substances, such as cigarettes and liquor. That means police and prosecution, which cost money.

As to the tax benefit, that’s partly a function of the price point for legalized pot. If everyone could legally grow and consume dope, then the crop probably wouldn’t be worth $35 billion and the taxes wouldn’t be anything to write home about.

“I have a hard time believing the tax revenue would offset the full cost of regulating and enforcing the legal market,” Pacula concludes.

No golden pot tax in the pot at the end of the rainbow, then? Pacula left me thinking that the unintended consequences of legalizing marijuana in 2009 might match the unintended consequences of outlawing liquor in 1919.

I’m sorry to let you down, President-elect Obama.

I think I’ll go have a drink. Here’s your tax nickel, Arnold. Oh heck -- I want to do my bit for California. Here’s a dime.