Pot taxes a chance to improve municipal budgets
When Missouri voters approved the ballot initiative legalizing marijuana in 2022, one part of the plan authorized cities and counties to enact a 3% tax on marijuana sales in their communities (once again upon voter approval). Many cities proposed such taxes in 2023, but several cities in the greater Springfield area waited until 2024 to consider it, including Nixa, Republic, and Rogersville. The argument in favor of voters approving the tax is straightforward enough, but the debate over what to do with the new tax revenue is more complex.
“Pigouvian” taxes are taxes levied on certain goods to address their negative effects. They are common and include special taxes in Missouri on items like cigarettes, alcohol, and pool tables (yes, really, pool tables). Tobacco and alcohol consumption impose certain costs on society, and the extra tax revenue can be used to fund services to address those negative effects, like lung cancer research and drunk-driving enforcement. In addition, the taxes make the item more expensive, thereby reducing consumption. Elsewhere, for example, gas taxes may be quite high not only to fund roads but also to encourage public transit.
Marijuana legalization will indisputably have some negative societal effects, and the 3% local sales tax on it can help fund services like municipal police efforts to mitigate those negative impacts. Also, life is not a Cheech and Chong movie — dare to dream that it were! — and cheap pot really doesn’t do anyone much good. I generally support neither new nor high taxes, but the argument in favor of these new local marijuana taxes is strong.
What to do with the money is a more difficult issue. There are two questions: Should the revenue be dedicated to certain uses or sent to the general fund? And should it serve as new revenue or be used to cut taxes elsewhere? Directing taxes into the general fund gives local officials more flexibility to address local needs, but earmarking taxes improves both voter and elected official decision-making and accountability. In some cases, as with cigarettes, the harms to society are easy to determine. Accordingly, the choice to earmark tobacco taxes to health-related fields, as we generally do in Missouri, is defensible.
Legal marijuana, however, will be more like alcohol, with costs and harms to society spreading across a variety of sectors. Should the new sales tax revenues go to policing? Health care? Family services? Who knows? This is why alcohol taxes generally are not earmarked in our state, nor should local marijuana taxes be in these three cities. (However, focusing at least some of the new marijuana taxes on police services would make sense.)
Politicians will try, as is their wont, to treat the new marijuana tax revenue as manna from heaven. Voters should demand more from them as we approach the elections. A new marijuana tax should not just be an opportunity to raise more revenue. It should also be an opportunity to replace other, more economically harmful taxes. Republic, in particular, has a high local sales tax at 3.125 percent, and perhaps the marijuana tax could be used to lower or eliminate other sales taxes.
Marijuana taxes are an opportunity to improve both the current budgets and the long-term tax environment for cities and counties. Voters in Nixa, Republic, Rogersville and anywhere else with a marijuana tax on the ballot should demand a plan that does both.
David Stokes is the director of municipal policy at the Show-Me Institute.