Marijuana legalization: a taxing issue

Tax debates often get heated, but a marijuana tax is particularly divisive because it's so speculative. (After 70-plus years of illegality, little is known about the economics of the drug.) A cannabis tax could be like an excise tax (a point-of-sales tax added to any sales tax, as exists in many places for gasoline, alcohol, cigarettes, and, potentially, soda), or it could be a pricey license to sell the product. Either method would increase the cost to consumers, who would in turn buy less of the product—a public health benefit in either instance. And unless people buy drastically less soda or pot, the government will pocket some extra cash. So far, it seems like a win-win situation.

But there are complications. One is the thriving black market for marijuana, with sales valued, albeit shakily, as high as $100 billion a year. A high tax could keep the market underground, robbing the government of tax revenue. The theory is that John Q. Pothead would be willing to pay a premium so he can "go to a regulated establishment that can assure some level of safety and labeling," says Houston of the Marijuana Policy Project. But make the premium too high, he says, and users will just go to "that shady guy" on the corner. The problem is that nobody really knows what the optimum premium is.