The art of taxation seems to elude Illinois lawmakers.
The latest example is the tax structure developed for recreational cannabis in Illinois. A group of state lawmakers essentially admitted that they just might have set the tax rates too high.
Although this might not be as egregious as what they tried to do with the taxes for a proposed casino in Chicago, it's further evidence that many lawmakers have no clue how overly burdensome taxes make Illinois less competitive than most U.S. states.
State Sens. Heather Steans, D-Chicago, and Toi Hutchinson, D-Olympia Fields, and state Reps. Kelly Cassidy, D-Chicago, and Jehan Gordon-Booth, D-Peoria, recently published a "Municipal Toolkit" for the state's recreational marijuana law, House Bill 1438.
In it, they urged municipal officials to "proceed with extreme caution" when it comes to taxing recreational cannabis sales next year, when the product is scheduled to hit the open market. That's because the state's taxes on the soon-to-be-legal recreational marijuana may already be too high for some consumers.
"Proceed with extreme caution and avoid immediately taxing to the cap. We are already near the high middle end of tax rates around the country, and it’s vital to allow the marketplace to mature before increasing tax rates," the Municipal Toolkit says. "This has been a huge issue around the country as states and locals have often found that street markets lower prices to compete and maintain market share, so it’s critical to allow the new market to gain traction before increasing consumer costs through taxation. It is anticipated that it will take up to 5 years before the market is fully mature, so a taxation strategy should take this into account to avoid negatively impacting consumer movement into the legal marketplace and counterproductive taxation strategies."
That's sage advice.
Too bad lawmakers didn't follow it when they were drafting the law, and pretty much never follow it when crafting the state budget each year.
Illinois lawmakers placed a 7 percent tax on wholesale marijuana sold by cultivation centers to retailers. The end-user will pay much higher taxes. The state put a 10 percent tax on cannabis flower or products with less than 35 percent THC, the chemical that produces marijuana's high. There's a 20 percent tax on edibles and other cannabis-infused products. And a 25 percent tax was imposed on any cannabis product with a THC concentration above 35 percent.
On top of all that is the state's 6.25 percent sales tax. State lawmakers also left room for local taxing bodies to get a cut. Starting in September 2020, municipalities and counties will be able to add a local tax of 3 percent.
Add it all up and that's a heavy load.
And that's where the message from the Municipal Toolkit is coming from.
If they were being truthful, they might have well just said: "Hey, the state already placed overly burdensome taxes on recreational marijuana. Please don't add more. Illinois is desperate for the new revenue because we've mismanaged the state for the better part of, well, forever. We need people buying state-sponsored pot. We fear if you locals add even more taxes, consumers will continue to buy from their friendly neighborhood dealer. So just back off for a few years."