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Tax Revenues Think Piece

Greg Starks

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I wrote the following as a reply in a thread here that would have taken it entirely off-base. It suggests that if we deploy a well-considered system, substantial state and federal taxes could be collected from participants in the MM program.:


Income and Use Taxes on Medical Marijuana - notes


My reading of the Sales and Use Tax suggests CGs ought to be collecting 6% per transaction, since the product will be used here. Income taxes are described reasonably accurately above, with the caveat that some expenses are deductible, while others aren't.


So if there are 100,000 patients, there would be something like 40,000 CGs, if current patterns stay true. If patients on average consume 1 oz per month, at a compensation value of $250 per oz. Then you have something like $100,000 x 12 x 250 = $300,000,000. That represents the amount on which both use and income taxes could be calculated. 6 percent of 300 million is $18 million. State income taxes at 4 percent would be another 12 million. Similarly, 30 percent (federal income tax) is about $100 million.


Taxes per caregiver would usually equal about 1/3 of their net income from providing caregiver services.

Average income per caregiver would be 300,000,000/40,000 = $7500 in this model. Why the 2.5 to 1 CG to patient ratio has persisted is a mystery to me, particularly given the number of self-cultivating patients. It would be extraordinarily interesting to see the distribution of patients per caregiver. In any case, if the ratio went to 4 to 1, you would end up with 25,000 caregivers, the same taxation levels, but average annual income would be $12,000.


These numbers could of course vary in a number of ways - consumption could be double my estimate, which would mean that income and taxes would double. Similarly, the number of patients could also be twice my estimate, but that would mean that overall taxes would double, but income per caregiver would not. Prices could also remain high so as to discourage 'fungibility' into the black market. The implications of not discounting the 'criminal risk premium' (that black market transactions always add) is to increase the average compensation level to $350-ish per ounce. So then the numbers change a bit differently: 100,000 x 12 x 350 = $420 million. Taxes are on the level of $150 million, but revenue per CG increases to $10,500 or $16,800, depending on the number of patients per CG, and 1 oz per month consumption averages.


So what does that mean for Michigan? Of the $150 million in taxes, about $40 million would stay here. That's not chicken feed, but it isn't nearly enough to significantly impact the state budget. And why should it be? 100,000 patients is barely over 1 percent of the state's population. It would be silly to imagine that the outcome could be otherwise.


To put it in perspective: Michigan collects about $6 billion, or $6,000 million annually in income taxes. So our contribution would be 6/10 of 1 percent of total General Fund revenues. From this example its easy to see that the MMA could result in significant revenues for the state, but at the same time, there is not a scenario that I can envision, even if mental health conditions are added to the Act, where MMA-related revenues can contribute substantially towards solving the colossal problems Michigan faces today.


In fact, Mr. Cushingberry delivered a fascinating presentation called "Restoring our Revenue" last Wednesday. His main points were that Michigan's economy and governmental revenues depend largely on factors which the state cannot control - most specifically the price of fuel. We spend hundreds of millions of dollars, without much noticeable effect. Lately, the trend has been to grant 'tax exemptions' - choices to not tax otherwise taxable property, income, or transactions. The budget difficulties faced by the state today are directly related to expenditure decisions. His argument was that tax expenditures have had no noticeable effect over the past 16 years, and have had virtually no impact at the statewide level, other than to drain the coffers of the General Fund.

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