Excise Taxes on New and Existing Markets

With revenues short of pre-pandemic projections, many states have looked to excise taxes as a way to plug revenue gaps, sometimes by raising existing tax rates (particularly on tobacco and vapor products) and other times by legalizing and taxing new markets, like sports betting and marijuana.

States often struggle with the trade-offs inherent in these so-called “sin taxes,” trying to navigate sometimes competing public health and revenue generation goals. They must also grapple with often unstable revenues and questions of how to design taxes on newly legalized markets. How, for instance, should marijuana be taxed? By price (ad valorem), like a sales tax, or by weight or potency or something else? How can policymakers put harm reduction principles into practice? What sort of revenues can policymakers expect from taxing marijuana, or what might they forgo in tax receipts with a tobacco flavor ban?

In this course, we will explore these and similar questions related to excise taxes, along with a review of the basic theory of excise taxation.

Areas of Focus

1. Approaches to marijuana taxation
2. Revenue considerations for excise taxes on new markets like marijuana and sports betting
3. Tobacco taxes, flavor bans, the problem of cigarette smuggling, and harm reduction
4. The purpose and standard structure of excise taxation

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