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Archive for the ‘Tax Policy’ Category

I just got done reading an article by The Economist (http://www.economist.com/node/16591136), and it got me thinking.

The article was about legalizing or simply decriminalizing marijuana consumption in California.

It was interesting to me because of how it could affect the economy.  In the article, the RAND Corporation predicted that the retail price of an ounce of marijuana would decrease by 80%.  This decrease can mean many different things.  It would be very bad for business for dealers and distributors because of the loss of revenues.  I recently started watching the Showtime show Weeds, and this point was further reinforced when Nancy’s distributor Heylia expressed disdain for legalization or decriminalization.

Another less obvious point that comes from this decrease in retail price is the ability of governments to tax purchases of marijuana.  If the retail prices does in fact decrease by 80%, then that is all the room government has to tax the marijuana without distorting consumer behaviors.  Furthermore, they would still have the room to levy a tax that would still make the price lower than when it was illegal, which could increase consumption, and thereby increasing tax revenues.

I am not an expert on tax policy, but these points are definitely something for policymakers to consider when dealing with near bankrupt state governments.

Of course, as many economists and analysts have stated before, legalization could decrease crime because of the elimination of marijuana’s black market.  Furthermore, cost to government to incarcerate “criminals” would decrease.

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I was reading Cato economist Dan Mitchell’s blog (http://danieljmitchell.wordpress.com/2010/06/19/russia-getting-rid-of-capital-gains-tax/?utm_source=twitterfeed&utm_medium=twitter), and he said that Russia was eliminating their capital gains tax.  His video went on to outline how different types of taxes work.  He also went on to mention that the Obama administration was going to further increase capital gains taxes in the US.  How ironic that men who were part of a Communist mega-state are adopting a smarter tax policy that the supposedly liberal USA.

I went on to think of how the United States would react to such a tax policy.  Let me say this now: I am very interested in how good economic policy can help and empower the poor.  I also think regressive tax policies are unfair.  Though consumption taxes are fair in that they only tax on what an individual consumes, and they encourage personal saving.  They can be unfair because the poor do not have the ability to save (they must spend most of their earnings on food, housing, etc.).

So what if the US followed Russia and eliminated the capital gains tax?  Increased investment creates more jobs (good for the poor).  Assuming a consumption tax policy is enacted, the rich would still pay their fair share because they would still consume (A common argument against eliminating capital gains taxes is that the rich would end up paying nothing if most of their income came from capital gains).  And since the poor would also pay for what they consume, maybe they could get tax rebates because of their income level.

These are just thoughts on the video and blog from Dan Mitchell.  Please respond with any thoughts on my points or offer better alternatives to what I have said.  Also, if any of my points are invalid or wrong, please let me know.

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