Deconstructing the Opposition's Claims About the RAND Taxation Analysis

One of the issues in the recent study by the RAND Corporation that has been seized by opponents of Proposition 19 is that the tax revenue from ending cannabis prohibition will not be as great as projected. Roger Salazar, spokesman for "No on Prop 19" claims the RAND study shows, "...even the local tax revenues could be dramatically lower than the claims made by the proponents. In fact, RAND said there would be a greater financial reward to evade new local taxes on a pound of marijuana than there would be to smuggle a pound of marijuana from Mexico to California."

Of course, what the disingenuous Mr. Salazar is not mentioning are two major problems with the RAND analysis being applied to Proposition 19 that I pointed out in my last post, among other numerous caveats made by the authors of the study themselves and conveniently left out of Mr. Salazar's list of "findings," taken primarily from their page two summaries.

First, there is the issue of conflating the Ammiano state Assembly bill and Proposition 19. The bill specifies a state excise tax of $50 per ounce, while the proposition does not specify any tax, but leaves it up to individual localities within California to allow commercial activity, and, if so, how to regulate and tax it. RAND admits that the lack of a specified tax rate in Proposition 19 "makes it extraordinarily difficult to forecast what tax revenues will be." For the purposes of projections and comparability, the RAND study uses $50 per ounce as a base taxation rate, but it specifically adds, in the very same sentence, that "there is no particular reason to think that $50 per ounce will be the tax rate if the RCTC proposition [Proposition 19] passes, and there is even some reason to doubt that a uniform high tax would be sustainable unless it were imposed at the state level."

"No on Prop 19" also quotes page 2 of the study: "Tax revenues would be wildly uncertain: the state 'could see increases in consumption and low revenues due to tax evasion or a "race to the bottom" in terms of local tax rates.'" They ignored numerous caveats to this, such as the first part of that sentence, which is, "Although the state could see large increases in consumption and substantial positive budget effects" and further down the same page, under the "key insights derived," "Tax revenues could be dramatically lower or higher than the $1.4 billion estimate; for example, there is uncertainty about potential tax revenues that California might derive from taxing marijuana used by residents of other states (e.g., from “drug tourism”)." [Emphasis mine.]

It then goes on to use cigarettes as a source of data for potential tax evasion rates. Because higher cigarette taxes usually lead to higher tax evasion, their projections suggest that, at $50 ounce tax on cannabis, "evasion would be (much more than) complete, and no taxes would be collected at all. " However, this parallel does not follow. Cigarettes are going up in price; cannabis would be going down. The study currently puts sinsemilla-grade (seedless, good quality) cannabis at $300-$450 per ounce in California. It also estimates indoor-grown cannabis to drop to $38 per ounce should prohibition end (either by the Ammiano bill or Proposition 19 passing). Even assuming a $50 per ounce tax, that means cannabis would still be $88 per ounce, or 20%-30% of its current price. Compare the outrage, annoyance, and budget shortfalls of the cigarette smoker whose product has just gone up 50¢ to $1 a pack, to the cannabis smoker whose product has just gone down over $200. Compare this also to the alternative, especially currently, to paying this tax-- fines, imprisonment, and a criminal record. The tax would be bargain at even $100 per ounce, if the prices fall as expected.

It then goes onto say, "...the financial reward for evading the Ammiano-bill (or $50-per-ounce) tax on a pound of marijuana after legalization will be greater than the financial reward is today for smuggling 1 pound of marijuana from Mexico into California, since the price of a pound of Mexican marijuana in California today is less than $800 (Caulkins, Morris, and Ratnatunga, 2010)." If you go back up to the top of this post and reread Mr. Salazar's statement, he says that RAND found that the financial reward for smuggling cannabis from Mexico to California would be more than the reward to evade "the new local taxes" caused by Proposition 19. Notice the subtle difference between this and what RAND is actually saying, which is based, again, on the proposed $50/ounce tax in the Ammiano bill, not Proposition 19's variable local tax. Also remember that RAND emphasized it was only using $50 because they needed to use some number, and using the same rate as the Ammiano bill worked well for comparisons. As mentioned, they emphasized that "there is no particular reason to think that $50 per ounce will be the tax rate if the RCTC proposition [Proposition 19] passes, and there is even some reason to doubt that a uniform high tax would be sustainable unless it were imposed at the state level."

If "No on Prop 19" has a good case, why do they need to selectively quote and outright lie to convince people?