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Is legalized marijuana really a tax windfall?
Senate President Pro Temopore, Martin Looney, D-New Haven, urged lawmakers to consider legalizing the recreational use of marijuana in Connecticut, claiming it “could be a substantial revenue benefit to the state.”
Looney’s comments come as both Massachusetts and Maine have marijuana legalization on their November 8 ballots as indirect initiated state statutes.
Colorado, which legalized recreational marijuana use in 2009, claimed $135 million in tax revenue generated in FY 2016. This was an increase from $77.9 million in 2015 which, as the Colorado Fiscal Institute points out, was less than 1 percent of Colorado’s General Fund budget.
Chris Stiffler, an economist with the Colorado Fiscal Institute says the idea that it will bail out a state mired in deficits is not realistic. “There was this idea in Colorado that there would be an extra lane on every highway and an extra teacher in every classroom, but we’re not talking about those kinds of numbers.”
Although there are some economic benefits to marijuana legalization they do not supplant the benefits of a robust economy that draws job seekers. Colorado’s net migration has increased, adding over 100,000 people to the state in 2014 and recently real estate prices have increased yearly by double digits. Stifler says the migration has little to do with marijuana legalization but is due to Colorado’s growing, business-friendly economy.
“You get some marijuana tourism,” Stiffler said. “But I think millennials are flocking here because because we have a good economy, low unemployment, skiing and sunshine.”
In 2014, Connecticut’s Office of Fiscal Analysis estimated Connecticut could generate $55.3 million in tax revenue if marijuana was legalized in 2016. This would amount to approximately .2 percent of Connecticut’s operating budget.
Connecticut faces projected budget deficit of $1.3 billion in 2018, meaning that tax revenue from marijuana legalization could, if the projections are right, lower the deficit by 4 percent.
Tax revenue generated by cigarettes, alcohol, casino gaming, lottery sales – and potentially marijuana sales – are known as “sin taxes” and has been declining in recent years. In 2015, Connecticut sin taxes generated a total of $721 million.
But the tax revenue generated from sin taxes can be swallowed by peripheral costs associated with those products. The experience of Colorado provides some insight into those unforeseen costs.
According to a 2016 report from the Colorado Department of Public Safety, marijuana usage among all age groups increased, which had peripheral effects. Emergency room visit due to marijuana related issues increased from 803 per 100,000 to 2,413 per 100,000 following marijuana legalization.
Although arrests for marijuana significantly decreased, the state saw an increase in arrests for driving under the influence of marijuana. There was also a 5 percent increase in arrests for marijuana possession and an increase in school suspensions and expulsions due to marijuana possession.
Oddly enough, problems related to alcohol usage also increased since the legalization of marijuana, according to a 2015 report by the Rocky Mountain High Intensity Drug Trafficking Area, a drug enforcement program run by the United States Office of Drug Control Policy.
Some of the revenue generated by marijuana sales in Colorado is spent on educating people about the dangers of drug and alcohol use. In 2016 the state legislature set aside $2.5 million in tax revenue for schools to “hire more health professionals including nurses, counselors, social workers and psychologists,” according to the Denver Post.
Vice News also reported that “much of the remaining revenue is being distributed to substance abuse treatment programs, school construction, and training and equipment for law enforcement agencies to deal with marijuana-specific problems.”
Similarly, Connecticut claims to use funds generated by its cigarette tax to support anti-smoking organizations and efforts but in reality, much of that revenue is consumed by other spending.
Connecticut was one of 46 states to take part in the lawsuit against tobacco companies in 1998. Since then $1.29 billion has been received by the state, but less than 2% of those funds went to smoking cessation efforts. The rest was placed in Connecticut’s General Fund and spent.
Anti-smoking organizations lobbied lawmakers in 2015 to increase the cigarette tax so they could continue their anti-smoking work. Lawmakers raised the tax on cigarettes in 2016 by 25 cents per pack.
Colorado planned to use tax revenue generated by marijuana sales to fund school construction but, according to Kevin Sabet, president of Smart Approaches to Marijuana – an alliance of health professionals that advocate for a health-first approach to marijuana policy – the reality rarely meets expectations. “For every dollar we receive it costs us ten on medical and law enforcement costs. And last time I checked, the lottery is supposed to pay for education but it doesn’t at all,” he told Vice News.
In Connecticut less than half of the money generated by lottery ticket sales go into government coffers. Of those funds 17 percent – $54.4 million in 2015 – went to education, approximately .6 percent of the $8.5 billion spent on education that year.
Tax revenue from casinos has also been declining. In 2014 casino gaming accounted for $603 million in tax revenue, down 16 percent since 2006. This has been met by calls for a third casino in Connecticut. Massachusetts has authorized casinos to be built to compete with Foxwoods and Mohegan Sun, potentially drawing customers away from Connecticut.
With tax revenue from marijuana sales expected to be much lower than the $707 million in lottery sales or the $603 million in casino gaming revenue, the effect of legalized marijuana on the state budget and the programs it would supposedly support could be negligible.
Stiffler says Colorado’s resurgence appears to be driven more by a robust economic environment rather than marijuana sales tax revenue. “It has been beneficial to some of the towns that may have an extra million or so for projects,” Stiffler said, “but I don’t think people realize how big the state budget is and what kind of numbers we’re talking about.”
The Tax Foundation ranked Colorado 16th in the nation for its overall tax climate, while Connecticut was ranked 43rd. Similarly the Cato Institute ranked Colorado 10th in the nation based on personal and economic freedom. Although marijuana legalization contributed to Colorado residents’ personal freedom, its “relatively open occupational licensing system” and lower than average tax burden made the state more economically free. Connecticut ranked 45th.
On November 1, the Connecticut Department of Labor and the Department of Economic Community Development ranked Colorado as having the strongest economy in the nation in their State Economic Index. The index ranked Connecticut 38th in its own assessment.
“Raising taxes in response to this economic downturn ignores twelve years of Connecticut’s economic and fiscal history – and will only chop any chance of recovery off at the knees. Connecticut now has an opportunity to gain wealthy residents fleeing New York City and thereby increase its high-income tax base. ...