Tax Logic, Colorado Style

Today we are taking a break from the European crisis to enjoy the amusing outcome of Tuesday’s elections and referendums in Colorado. Yahoo News reports:

A Colorado measure to impose sales and excise taxes of 25 percent on newly legalized recreational marijuana and earmark the first $40 million in revenue for public schools was approved by voters on Tuesday, Governor John Hickenlooper said. The move showed a willingness on the part of Colorado voters to tax marijuana for the public benefit even as they roundly defeated a broader tax measure that would have increased state income taxes to raise $1 billion for schools.

 These two votes put on full display the amazing lack of logic that characterizes modern American liberalism. First of all, there is this prevailing notion that government needs more money in the first place. Has anyone ever heard a tax-hike proponent explain when government is big enough?

Secondly, even if we accept the false premise that government does need more money, should we not try to have a tax base that is as stable as possible to match the permanent nature of the spending program? You know, that same logic that lies behind a mortgage loan: if you take on a permanent expenditure you want to make sure you have a permanent income to pay for it.

In Colorado, the extra tax revenue is going toward public education, a rather permanent spending program. Would it not be a good idea to get the revenue from an activity that, even when taxed, will remain relatively intact?

Well, that may be what logic and economic common sense says. But Colorado voters are of a different opinion. Instead of paying for their children’s education out of their work – a socially and economically productive activity – they are going to pay for it when they do something that is neither socially not economically productive, namely smoke pot.

The message from the Colorado ballot boxes is crisp clear. If you want your children to get a good education, you should spend more time smoking marijuana and less time working.

In reality, it is hard to believe that Colorado voters really want to promote sloth and intoxication over workforce participation. More likely, the tax-vote outcomes exhibit the usual mindset among too many Americans: on the one hand they want government to provide them with a goodie – in this case public education – but on the other hand they want someone else to pay for it. Assuming that most Colorado parents work but do not consume cannabis, it seems like they have temporarily managed to get something for nothing.

The problems come when all the taxes that are now being put on marijuana makes the product unaffordable to many users. Yahoo News again:

 In Denver, a local ballot measure that would tack an additional 3.5 percent city sales tax on pot shops also appeared headed for passage, by a margin of 69 to 31 percent with roughly a third of votes counted.

 Other news reports indicate that in some parts of Colorado, local taxes could push the total pot tax burden up to 35 percent. At such high rates, taxes create strong consumer disincentives, resulting in less pot smoking than the tax advocates expected.

Which brings us back to the illogical tax loop that Colorado voters are currently caught up in: if they really want to have an ongoing source of tax revenue for their public schools, then why do they raise taxes to a level where the tax base is going to shrink in response to that very same tax?

We will know the answer toward the end of 2014. That will be the point in time when Colorado school districts close the books on the next fiscal year and discover that the pot tax did not produce the revenues they so eagerly expected.

Where will Colorado voters look then for more tax revenues? Will they raise income taxes? Will they legalize other drugs and tax them? Will they legalize brothels?

Or will they finally come to the point where they realize that the problem with government is not its insufficient revenues, but its excessive spending?