Taxing Untaxed Products Is Not “Good for the Economy”

Consider the title of this brief bit, Could Legalizing Marijuana Help the Economy?, and then consider the content:

FDR spent his first few days in office fixing the banks, and then he legalized beer. President Obama has buoyed the banks; what about legalizing marijuana? asks Keith Stroup, the attorney who founded the National Organization for the Reform of Marijuana Laws in 1970. For decades, Stroup has argued that legalizing pot would produce mega tax windfalls, and now, officials of states zonked out by the fiscal crisis—Texas, Tennessee, Massachusetts, and Pennsylvania—are asking Stroup for the 411 on ganja green. “As smokers,” he adds, “we’re raising our hands and saying: ‘Tax us!’ “

Let’s be perfectly clear here: increasing taxes might temporarily improve state government balance sheets, but it’s not good for the economy. While a tax on marijuana would bring in “new” money to state coffers, it would of course drive up the price of the (legal or illegal) product and thus its users would spend less money elsewhere. Perhaps on purely moral and political grounds marijuana should be legalized (how a person damages himself is not government’s concern), but there’s no sensible economic argument to support it.

It’s important to make special note of the article’s basic premise: what’s good for the state is good for the economy. History and current events both show this to be a deadly fallacy.

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