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The Laffer Curve on drugs

July 22, 2009

TaxGrrrl reports that Oakland may embrace a Marijuana tax. Iowa is way ahead of them:

SEC. 43. 453B.7 TAX IMPOSED - RATE OF TAX
An excise tax is imposed on dealers at the following rates:

1. On each gram of processed marijuana, or each portion of a gram, five dollars.
2. On each gram or portion of a gram of any taxable substance sold by weight other than marijuana, two hundred fifty dollars.
3. On each unprocessed marijuana plant, seven hundred fifty dollars.
4. On each ten dosage units of any taxable substance other than unprocessed marijuana plants that is not sold by weight, or portion thereof, four hundred dollars.

The difference, of course, is that the Iowa tax is imposed at brutal rates, and is really just another way to punish pot users and dealers. The Oakland tax would be 1.8% of the sales price. While I'm not plugged into the pot markets, I can't imagine it costs enough to make the Oakland tax anywhere near as high as Iowa's; it would be lower unless pot sells for $277 per gram, or about $7,875 per ounce. If you ever wonder if there are real-life examples of the Laffer Curve, this has to be one. If Oakland passes the tax, you can be sure that tax will raise more revenue than the Iowa tax.

Update: "E-stoned.com" purports to have current pot prices. The "good weed" quote is $250/oz. That would mean the Iowa rate would work out to about 56.68%, vs. Oakland's 1.8%. Your mileage may vary.

Tags: Laffer Curve.TaxGrrrl.