Marijuana: Government's New Tax Cash Cow

Posted: Feb 20, 2014 1:07 PM
Marijuana: Government's New Tax Cash Cow
Colorado made marijuana legal and subjected it to a hefty sales/sin tax last year, and Democratic Gov. John Hickenlooper has raised expectations for how much these marijuana taxes will bring in over the next fiscal year. Initially budgeted to raise $70 million per year, Gov. Hickenlooper predicted that hte marijuana sales tax would bring in $98 million in its first fiscal year:

The proposal outlines plans to spend some $99 million next fiscal year on substance abuse prevention, youth marijuana use prevention and other priorities. The money would come from a statewide 12.9 percent sales tax on recreational pot. Colorado's total pot sales next fiscal year were estimated to be about $610 million.

The governor predicted sales and excise taxes next fiscal year would produce some $98 million, well above a $70 million annual estimate given to voters when they approved the pot taxes last year. The governor also includes taxes from medical pot, which are subject only to the statewide 2.9 percent sales tax.

Of course, there could easily be something amiss here: Democratic Gov. Hickenlooper has decided he wants to increase spending on these state spending programs and is thus projecting revenue he knows won't appear to spend money he knows he won't have.

This is the problem with sin taxes that are used to finance new spending programs: if sin taxes work at discouraging behavior, there will be less tax revenue to finance those spending programs and there will be higher deficits. Sin taxes should be used for general revenue, not earmarked for specific programs.