Grover Norquist, who last month spoke in favor of legislation that would allow state-licensed cannabusinesses to deduct expenses on their federal tax returns, tells National Journal that politicians who vote for taxes on newly legal marijuana need not worry that they are violating the pledge promoted by Norquist's group, Americans for Tax Reform. The ATR pledge says, "I will oppose and vote against any and all efforts to increase taxes." But according to Norquist, marijuana taxes don't count:
"That's not a tax increase. It's legalizing an activity and having the traditional tax applied to it," he says.
He compares legalization to changes in alcohol regulation, as when a state legalizes the sale of liquor on Sundays or allows grocery stores to sell beer and wine where they previously couldn't.
"When you legalize something and more people do more of it and the government gets more revenue because there's more of it…that's not a tax increase," he explains. "The tax goes from 100 percent, meaning it's illegal, to whatever the tax is."
At 25 percent on three levels of sales (on top of the state's standard sales tax of 8.75 percent), Colorado's marijuana tax is significantly higher than its levy on alcohol, but it's all the "same zone," says Norquist.
If we were talking about the standard sales tax or income tax, Norquist's description would be accurate: Legalizing marijuana automatically makes it subject to taxes that apply to other legal industries. But the special marijuana taxes are another matter. Surely those count as new taxes. And even if you accept the general idea of "sin" taxes on politically disfavored products, the pot taxes in both Colorado and Washington are much higher than those states' taxes on alcoholic beverages, contrary to what Norquist implies.
The tax of "25 percent on three levels of sales" to which National Journal refers is actually Washington's scheme, not Colorado's. By comparison, Washington imposes the following taxes on alcoholic beverages: $8.08 per barrel (26 cents per gallon) for beer, 23 cents per liter for wine, and $3.77 per liter, plus 20 percent of the retail price, for distilled spirits. The tax on distilled spirits, by far the heaviest, raises the price of a $20, 750-milliliter bottle by about 35 percent. By contrast, the marijuana taxes will raise retail prices by about 58 percent, according to calculations by BOTEC, the consulting firm hired by Washington's cannabis regulators.
In Colorado, where the legalization initiative proposed taxing marijuana "in a manner similar to alcohol," the disparity between alcohol taxes and pot taxes is even bigger than in Washington. Next month voters will decide whether to approve Proposition AA, which authorizes a 15 percent excise tax and a special sales tax of up to 15 percent. By comparison, Colorado imposes the following taxes on alcoholic beverages: 8 cents per gallon for beer, 7.3 cents per liter for wine, and 60.3 cents per liter for distilled spirits. Again, consider the impact of the tax on distilled spirits, the most heavily taxed alcoholic beverage. The tax adds about 45 cents to the price of a 750-milliliter bottle; assuming a starting price of $20, that's an increase of about 2.3 percent, or one-tenth the price increase that the Proposition AA campaign says will result from the marijuana taxes. I would not say Tax A is in the "same zone" as Tax B if Tax A is 10 times as high as Tax B. Would you?
Even if we say, as Norquist suggests, that Colorado and Washington are replacing a "prohibition tax" with excise and sales taxes, consumers still could see the equivalent of a tax increase if legal prices turn out to be higher than black-market prices. That seems likely in Washington, at least over the short term, and might happen in Colorado as well.