The Value And Demand For Taxpayer Dollars

Don’t Worry, Be Happy – Bobby McFerrin

In May 2020, CA Gov. Gavin Newsom said he wasn’t worried about Tesla leaving the state.  Last month, when Elon Musk announced he was moving Tesla to TX, the Gov. changed his tune.  It seems he felt he helped create the company, citing the tax breaks he gave them.

Hypernomics has seen this argument before.  Breaks in CA usually amount to slight and temporary reductions in the business-crushing tax rates CA has compared to other states.  That’s why companies by the thousands have been leaving CA.  A legislative “solution” to lost tax revenue is to have CA tax requirements follow businesses and individuals once they leave the state.  But that 1) denies some tax monies to other jurisdictions and 2) makes it less likely for new companies to enter CA.

CA has the best weather in the US, but the Tax Foundation ranks it next to last in its business climate.  As hypothesized below, the Value to taxpayers increases with the physical and business environments. Increasing the latter’s Value makes it more appealing to taxpayers – if they are attracted enough to come into the state, they offer more Ways for CA to get needed tax dollars.  At the same time, all mature markets have Demand Frontiers, which deliver the Means by which they must abide.  It’d take lots of work to learn these forces in detail. But avoiding that effort leads to unpleasant surprises.

And worry.

#hypernomics #innovation #taxpayer #taxanalysis #markets #economics

Cannabis Laffer Curve Expanded:
The Netherlands Sparked North American Interest

In an earlier post, we examined the recreational pot tax structure.  Using US-only data, we discovered that at its frontier, a Laffer Curve formed that described the maximum amount of tax revenues possible given specific tax rates.

Here we entertain other authorities taxing legal recreational pot.  Added to the blue points forming a limit is another describing the tax rate and revenue per user for The Netherlands (NL) in 2008 (adjusted for inflation).  Through these blue points, the Laffer Curve explains 90% of their variation and is highly negative (power exponent -1.61).

Also considered now but not part of the Laffer Curve is the recent experience of British Columbia (BL 2019).  Observe it registered minuscule tax revenues.

At least 3 factors influence cannabis tax receipts: 1) Ease of legal access: BC, OR, and CA lag far behind their better-organized counterparts in making legal recreational marijuana sufficiently available.  2) Tax rate: From 15.3% (NV 2019) to 108% (WA 2014), revenues go up as tax percentages go down.  3) The proximity of lower-cost options: some would-be CA or CA tourist receipts or go to NV or black markets.

#laffercurve #market #marketanalysis #price #taxpolicy #demand #tax

Laffer Curve Quantified: Pot Taxes Get Too High

The Laffer Curve is the relationship between tax rates and revenues.  For income, taxes of 0% or 100% produce no tax revenue.  Maximum tax receipts lie in-between.

The study of this phenomenon has mainly been theoretical.

The recent rush of states legalizing recreational marijuana gives us a real-world example.

In 2014, Colorado and Washington legalized recreational pot.  Other states followed suit, all with different tax rates.  If we exclude the results for Oregon and California in 2019 (in red), the remaining six blue points form most of the Laffer curve for cannabis.  This blue power curve is highly negative (exponent -1.55) and significant (P-value 1.96E-03).  It explains why Nevada, in 2019, made over 30 times as much per cannabis user as did Washington State in 2014.

In 2019, California, with nearly 13 times the population of its neighbor Nevada, made barely half of the receipts of The Silver State.  California struggles mightily with the cannabis black market because of its tax policy.  There’s a lesson here: Never turn a market analysis problem into a legal one.  If someone blows smoke your way arguing for high marijuana taxes, don’t inhale.

#Laffercurve #markets #marketanalysis #cannabisnews #cannabistax #taxpolicy