In an attempt to win political supporters to their side, marijuana businesses are encouraging lawmakers to tax their operations. This way, the government gets a new stream of tax revenue, and the industry gains legitimacy, if not outright legality for its product, they argue.

Proponents of marijuana taxation say legalizing the drug could add billions of dollars to the U.S. Treasury.

Two members of the U.S. House, Democrats Earl Blumenauer of Oregon and Jared Polis of Colorado, have introduced a bill that would decriminalize marijuana and tax the sale of it to help pay for substance abuse treatment and law enforcement, not to mention help reduce the federal debt.

The two lawmakers estimate that a $50-per-ounce tax could raise up to $20 billion annually for the government. This amount would exceed what the treasury receives through taxes on alcohol ($7.9 billion) and tobacco ($15 billion), they claim.

Another House bill (the Small Business Tax Equity Act) would allow the Internal Revenue Service to provide breaks on federal income taxes for marijuana businesses.

Members of the U.S. Senate are also keeping an open mind about taxing marijuana. The Senate Finance Committee included marijuana taxes in an “options paper” listing new ways of creating more revenue for federal operations.

Some advocates say Congress needs to treat pot sellers like other businesses. Otherwise, state plans to tax and regulate marijuana for recreational use in Washington state and Colorado could fail.

“How can you run a business if you’re not receiving the same tax breaks?” Representative Adam Smith (D-Washington), one of 13 House members who are promoting the bill that would authorize the deductions for marijuana businesses, told McClatchy Newspapers.

The Denver City Hall has already given initial approval for a ballot measure proposing a 3.5% sales tax on retail marijuana which, once voted into law, would have the flexibility of being increased up to 15% or dropped altogether.

Some academics dismiss the claims that marijuana taxation will create a windfall for government treasuries.

“There’s just so much utter nonsense about this issue,” Jeffrey Miron, director of undergraduate studies in the Harvard University Department of Economics and a senior fellow at the libertarian Cato Institute in Washington, DC, told McClatchy.

“If they don’t like the fact that they can’t take certain tax deductions because they’re in an illegal business, then they should go in some other business where they can take tax deductions,” Miron, who specializes in the economics of illegal drugs, said.

-Noel Brinkerhoff

To Learn More:

Marijuana Industry Eager to Pay Taxes – and Cash in On Deductions (by Rob Hotakainen, McClatchy)

Denver Ballot Question Would Ask for 3.5% Sales Tax for Pot Shops (by Jeremy P. Meyer, Denver Post)

Oakland Sues Obama Administration over Loss of Tax Revenue Due to Medical Marijuana Crackdown (by Noel Brinkerhoff and David Wallechinsky, AllGov)

Taxing Marijuana Would Earn California $1.4 Billion (by Noel Brinkerhoff, AllGov)