Sunday, January 12, 2014

Smoking Our Way To Solvency?

Colorado now boasts “about 130” legal retail pot shops” writes USA Today.  According to the article, those stores anticipate a combined $600 million in year one sales of which about $130 million will end up in the state’s coffers.  However, this will not be pure windfall for the Centennial State as goodly portion will be devoted to regulation and policing of the nascent industry.

One customer, David Strong, age 59, is quoted as saying that, "If they legalized this stuff back in '68, the government would be out of debt right now."  He’s wrong about that and here’s why.

First, sin taxes are always self defeating.  Politicians do not want to be seen as advocating bad behavior.  Therefore, they rationalize taxation on booze, gambling and tobacco as deterrents - raising the price of vice.  On top of that, the governments that benefit from sin tax revenues inevitably mount anti-smoking, responsible drinking and responsible gambling campaigns that aim to curb or kill the geese that lay the golden eggs.

We also see the inverse of this. Government will suppress virtuous behavior when that good behavior hits the state in the wallet.  Such is the case with high efficiency / high mileage vehicles.  While most states are supposedly trying to conserve energy and limit carbon emissions, several, including the Pot State, are laying special taxes on electric and hybrid vehicles because their drivers are paying little or no tax at the gas pumps.

The second reason why weed taxes will not balance budgets is that new revenue streams fail to address the real fiscal problem – out of control government spending.

States promised that lotteries, off-track-betting, sports betting and casino gambling would be magic bullets to fund education, senior care and urban renewal.  Time and time again they fail and state governments continue to cry poverty.

State taxpayers will only find relief when they pressure their elected officials to cut spending.  This includes benefits and pension funding for public employees.  It probably won’t help if those taxpayers are stoned. 

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"Half the people are stoned and the other half are waiting for the next election.
Half the people are drowned and the other half are swimming in the wrong direction."
Paul Simon