How the Government Wants You to Get Drunk and High

Ethanol is ethanol is ethanol. It is the chemical that gets you drunk. It is the same chemical whether it comes from a cheap commercial beer, a $1,000 bottle of fine wine, or a shot of vodka — but the government doesn’t treat those drinks the same at all.

While the federal government would probably prefer no one drink, if you do, federal tax policy clearly plays favorites. The government financially encourages particular types of drinks.

The federal excise tax works out to about $0.02 for a beer from a small microbrewery and $0.05 for regular beer. For wine, it is about $0.04 per glass but roughly $0.12 per shot of hard alcohol although distilleries get a tax credit for adding flavoring. This is part of the reason why you have seen an explosion in flavored vodkas being sold.

In general, our federal tax policy is encouraging you to drink a local microbrew or sip wine instead of drinking hard alcohol. This basic policy preference make sense since it is easiest to accidentally consume too much ethanol by drinking distilled spirits. Of course, other tax decisions like giving an advantage to flavored vodka over regular vodka appear plain idiotic which is why President Obama tried to eliminate it.

There is no possible marijuana tax that would be completely “neutral”

As more states legalize marijuana and decide how they are going to tax it, the government is also going to end up playing favorites with how it wants people getting high. Even if states don’t decide to explicitly adopt a higher excise tax rate on certain types of marijuana products, like the federal government has done for hard liquor over wine, it is basically impossible to design a completely neutral tax structure for marijuana.

Take for example Washington’s law, which has a 25 percent excise tax on sales from growers to processors, 25 percent on sales from processors to retailers, and 25 percent on sales from retailers to consumers. While it may seem neutral at first, this 25/25/25 structure is indirectly disadvantaging edibles compared to other tax options. Edible makers will likely have more additional costs for their product, like food ingredients, than processors focused only on flowers. These extra costs added to their product then get hit by two further layers of excise tax. By comparison, if Washington replaced its 25/25/25 structure with a single 100 percent excise tax on just sales of growers to processors, this particular preference would go away.

Still, any excise tax based on price inherently favors very cheaply produced marijuana over high quality artisan products. The cheaper the cost of production on marijuana, the lower the taxes.

The initiatives in Alaska and Oregon instead both call for a marijuana tax based on weight. This, however, gives growers incentive to produce very potent marijuana over weak marijuana, since it provides the most bang for the least amount of taxes.

Even a tax based on THC content would produce its own set of unique incentives potentially causing growers to favor specific ratios of the other cannabinoids.

The government is going to end up indirectly favoring certain types of marijuana products no matter what. There might even be good public health reasons to financially favor flowers over edibles, or potent marijuana over weak marijuana; that is a debate we should have instead of letting it occur as an unforeseen accident. We should be aware of how any tax plan is going to shape the market and potentially use that to favor the healthiest choices.

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