Pot-tax impact on black market unpredictable
Editor’s note: Now through the Nov. 5 election, The Cortez Journal is examining common claims made in ballot campaigns.
By Joe Hanel
Journal Denver Bureau
Campaign: Proposition AA, marijuana taxes.
Claim: High taxes in Prop AA will increase the chances of consumers returning to the black market.
Who is saying it: The anti-AA campaign on its Web page, NoOverTaxation.org.
The pro-Prop AA campaign is claiming just the opposite, saying on its website that new taxes will not encourage the black market.
Because marijuana has been illegal for decades (and still is illegal under federal law), there is little real-world experience to prove what level of taxation is ideal. Academic studies point to differing conclusions.
A 2012 article in the conservative journal National Affairs cited other studies to predict legalization could lead to an 80 percent drop in the price of drugs because drug prohibition imposes a heavy economic cost on producers and dealers.
The article argued against legalization, saying not even the highest levels of taxation would be enough to keep the price of drugs from falling.
On the other hand, tax critics point to cigarette smuggling to make their case. The conservative Mackinac Center in Michigan tries to calculate the black market for cigarettes by comparing reported cigarette sales to smoking rates estimated by public-health surveys. When a state has more self-identified smokers than it does cigarette sales, the Mackinac Center chalks up the difference to smuggling. It finds more evidence for a black market in states with higher taxes.
The bottom line: Colorado is one of the few governments in the world to legalize marijuana. No one can credibly claim to know how much of the black market for marijuana will become legal until the retail pot stores start operating.