Taxing to benefit firms?

California is considering raising taxes on sales of medical marijuana, in an effort to increase the states revenue. The interesting aspect of this article is that the proposed increase was suggested by the vendors who sell the marijuana. This seems counter intuitive, as businesses want to decrease costs, and this would do the opposite and raise costs. Their rational is that by imposing a higher tax, the government will see and treat the vendors like other industries, and this leads the way to legalize marijuana, which is their ultimate goal.

This regulation seems shady, primarily because it was proposed by the firms themselves. This leads me to believe that they are proposing this not for the benefit of societal welfare, but rather for the benefit of the firm itself. That's true in this situation as well: the vendor industry wants this regulation to pass to increase their viability as a real business. They did a cost benefit analysis, and they have have accepted the costs of taxes because the benefits outweigh them. However, this may not lead to society being better off, as it only directly helps the firms.

California will have to closely monitor the vendors and how the new higher taxes affect them, in order to determine whether or not consumer are made better off. This seems unlikely though, as the state will get their higher revenue from taxes, and that will be a major plus from this policy. Because of this, the state is less likely to monitor welfare, as they will be getting more money, which is a main goal of the state. If the state can use those extra benefits to help improve the consumers, then that would make this a viable and effective policy. But they will also have to do a cost benefit analysis, and determine whether the revenue outweighs the possible consequences.

http://www.npr.org/templates/story/story.php?storyId=106071214

Tim Booth