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Marijuana taxes: If they're too high, they'll empower black market, says task force member

In coverage of last week's final Amendment 64 task force meeting, our Charles Trowbridge noted that in addition to a recommendation about a 15 percent excise tax at the wholesale level, an idea about a 25 percent point-of-sale tax was also floated. Task force member Christian Sederberg stresses that the sales-tax notion wasn't an official recommendation, and he opposed its inclusion as a suggested option -- because he fears that if tax rates are too high, the underground pot market might continue to thrive.

Sederberg, who represented the Amendment 64 campaign on the task force, felt fine about the excise-tax recommendation.

"The amendment contemplated an excise tax of up to 15 percent," he points out. "So obviously, the drafters felt like such a tax would be acceptable up to the 15 percent level."

But, he adds, "additional taxes are where the real concern arises."

How so? "A sales tax burden added to the total tax burden of either the consumer or the producer/retailer could create a situation that empowers the underground market instead of reducing it," he believes.

He didn't keep this view to himself. "During the task force's last meeting, I spoke strongly against a 25 percent sales tax, or really any number, without there being a lot more information about where to strike that balance. And I referred to the end of alcohol prohibition and the approach taken by President Roosevelt and his team.

"Initially, their goal was to undercut the underground market, and then raise taxes when the time was appropriate at a later date."

This argument wound up being persuasive to some degree, since the task force as a whole didn't recommend a 25 percent sales tax. However, he goes on, "it became a dissenting opinion." The task force members who supported such a sales tax "wanted to incorporate it as a possible suggestion. I was against that, too: I thought it was inappropriate for us to come up with a number if we didn't have all the information we needed about how the number would impact underground markets and consumer prices. And the whole purpose of the amendment was to replace the underground market with a regulated market."

In the end, Sederberg says, "there was not a suggestion of a 25 percent sales tax. It was just an illustration included in the recommendation that a sales tax be considered."

Does that mean the Amendment 64 campaign will oppose any sales tax when the Colorado General Assembly tackles the chore of passing a law to enact the measure? No.

Continue for more about marijuana sales taxes and the Amendment 64 task force.  

Christian Sederberg, second from right, at the final Amendment 64 task force meeting.
Christian Sederberg, second from right, at the final Amendment 64 task force meeting.
Photo by Charles Trowbridge

In Sederberg's words, "we're not opposed to considering a sales tax as long as it's reasonable and takes into account all of these things I mentioned."

Balance is important to Sederberg. So-called "sin taxes" on products like cigarettes and alcohol tend to be relatively noncontroversial, especially as compared to broader tax increases -- and marijuana is likely to wind up lumped in this category. But immediately jacking up taxes on pot to tobacco-and-booze levels could have a negative effect, he believes.

"The amendment contemplated a 15 percent excise tax that would be allowed to move upward after several years," he allows. "The idea is that if the appropriate taxation levels need to increase after this initial phase, and after the underground market is reduced due to the regulated market, then the time may come when raising taxes is appropriate. But right out of the gate, when you already have a robust underground market, is not the time to increase the prices artificially and excessively."

Aside from that, he feels the task force shouldn't have been "trying to come up with a percentage-type policy in this setting. That's the purview of the policy people and the legislature -- to determine what the rate should be. And there are a number of scholarly articles on this. There's history at the end of alcohol prohibition to look at, and it appeared to me those things weren't being fully considered by the task force."

Does Sederberg expect those behind the 25 percent sales tax to put pressure on lawmakers to adopt it? Perhaps, he acknowledges, "but the legislature is designed to address these sorts of macro-concerns through the committee process. So I anticipate they will end at a reasonable sales tax number that will not empower the black market."

Will the campaign forces lobby against such a heft sales-tax jolt? Sederberg's answer is cautious. "We will certainly continue to educate members of the public and the general assembly about this issue," he says.

As for the task force's efforts as a whole, Sederberg seems satisfied with how things went. "Although there were a number of heated debates, and not all of the recommendations came out the way I'd hoped, the process itself was successful, in that it brought a number of diverse viewpoints together and we ended with a solid foundation to work from."

The main recommendation Sederberg doesn't endorse involve a one-year period during which only currently existing medical-marijuana businesses can be licensed to sell recreational cannabis. But he also wants to make sure "we do not undermine the intent of the amendment by overtaxing."

More from our Marijuana archive: "A64 task force recommends 15-25 percent pot taxes, Hick warns of homeless youth increase."


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