A Colorado measure to impose sales and excise taxes of 25 percent on newly legalized recreational marijuana and earmark the first $40 million in revenue for public schools was approved by voters on Tuesday, Governor John Hickenlooper said.
The move showed a willingness on the part of Colorado voters to tax marijuana for the public benefit even as they roundly defeated a broader tax measure that would have increased state income taxes to raise $1 billion for schools.
Taxing goods with demand that is relatively insenstive to price changes–we call that inelastic demand–as we might expect the demand for marijuana among marijuana users will raise revenue and create a disincentive to smoke marijuana for some (although that disincentive might be small). Taxing income will raise revenue and create a disincentive to work (although that disincentive might be small as well).
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