Should California Legalize and Tax Marijuana?


California is a mess. Barring major intervention from the governor or legislature, it's about seven weeks away from a financial meltdown and crumbling under a budget deficit of $24 billion. Dark days call for drastic measures. If there was ever a time for a liberal-leaning state to start experimenting with illicit drugs or the taxable revenues thereof, this would be it. (With Update!)

State assemblyman Tom Ammiano made his pitch in February, a bill that would legalize the "cultivation, possession and sale of marijuana by people 21 and older." The bill would amount to about $50 per ounce tax on the drug, raising an estimated $1.3 billion for the state.

Are Californians cheering? Plenty are not, but my gut response to the What about our children!? argument is They might like legal pot too! Writing at Slate, Jeremy Singer-Vine says the state that led the push for legalizing medical marijuana has plenty of reasons to be the first to go all the way:

In April, a poll found that 56 percent of Californians supported the idea. In May, Gov. Arnold Schwarzenegger said it was "time for debate" about legalizing and taxing marijuana. Other states facing similar fiscal woes, such as Illinois, are considering proposals that would legalize and tax either medical or all marijuana.

What of the economics? Legalizing and taxing a product that's enjoyed a black market estimated at around $14 billion in the state is a ballsy move, and one not likely to please all buyers, sellers and government coffers simultaneously. Singer-Vine relays some words of wisdom from pot proponent Jeffrey Miron of Harvard. He says that in order to keep from setting a too-high premium on the drug (which would simply encourage current buyers to keep their buying and selling in the black market) the ideal tax would start small -- say, 25 percent -- and grow as the government sees fit.

There are also all the familiar, but no less impactful, pot defenses. Law enforecement against marijuana, a cost which Miron has placed in the billions nationally, would be nixed. Andrew Sullivan has been a determined warrior on the pot front, and of all his arguments I find this the most convincing: It's terribly difficult to peg deaths to marijuana use, which seems to call into question the rationality (or at least the cost) of all this law enforcement in the first place. And as you know, while I've trumpeted for sin taxes before, but I'm especially sympathetic to sin taxes on marijuana precisely because, as opposed than raising the price of my beer, a marijuana tax involves the expansion of legal civil liberties rather than merely the expansion of government attempts to make money. At a time of fiscal crisis, it's something I hope Arnold keeps his eye on. Oh, and for those uncomfortable with the expansion of legal marijuana beyond medicinal purposes, think of it this way: In California, the budget needs some medicine, too.

Update: The LA city council just closed a legal loophole that had allowed the rapid proliferation of medical marijuana stores in the city.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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