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The fiscal case for legalizing Marijuana

For America, the fact that the tax revenue from marijuana sales can keep the much-needed funds flowing into the individual states’ coffers while they record lower crime rates is a testament that legalization is a more better approach than prohibition.
For America, the fact that the tax revenue from marijuana sales can keep the much-needed funds flowing into the individual states’ coffers while they record lower crime rates is a testament that legalization is a more better approach than prohibition.
Photo by David McNew/Getty Images

Some revenue sources are so simple, you have to wonder why no one has come up with them before. One such is the revenue that would accrue from legalizing marijuana.

If history teaches us anything, it’s that, just like alcohol, the legalization of marijuana will be a desirable public policy. The U.S. public think so too: A 2013 poll conducted by Gallup Inc., a research-based, global performance-management consulting company, found that 58 percent of Americans say marijuana should be legalized. This result showed that public support for legalization has increased significantly since the time Gallup first asked the question in 1969, when only 12 percent of the participants favored legalization(Gallup Politics, 2013).

So far, twenty states, including Maryland, Colorado, Illinois, Washington, and the District of Columbia now have laws legalizing marijuana mainly for medical use(Governing, 2014). Across the country, the advocates of marijuana prohibition believe that the measure reduces marijuana use and trafficking which, in turn, will discourage crime, enhance societal wellbeing as well as increase productivity.

The critics, on the other hand, are of the view that prohibition, which has been in place for decades, did not result to a significant decrease in marijuana trafficking and use. Instead it had caused problems typically attributed to marijuana itself: respiratory disease due to smoking and accidental injuries due to impairment (Gieringer, 1994).

From an entirely practical standpoint, it’s time for a serious debate about whether the prohibition of marijuana makes any sense. One reason that makes this kind of debate important is the effect that marijuana prohibition can have on government budget.

Broadly speaking, prohibition involves direct enforcement costs on the part of the government. In addition, if marijuana is banned, the revenue which government can generate from its production and sales will be lost. In contrast, enforcement costs would be negligible and governments can levy taxes on the production and sales of marijuana if it were legal. Thus, in this era of economic crunch, legalizing marijuana can be one of the ways of keeping the much-needed tax revenues flowing and puffing up the local economic growth figures nationwide.

Pay-as-you go – The charms of Legalization
In 2012 Ezekiel Edwards and Rebecca McCray of American Civil Liberties Union(ACLU) Criminal Law Reform Project concluded on their article ‘Hundreds of Economists: Marijuana Prohibition Costs Billions, Legalization Would Earn Billions’ that the current U.S. marijuana policies are ineffective, expensive and discriminatory.

And in their article occurs this educative passage: ‘Our courtrooms, jails and prisons remain crowded with nonviolent drug offenders. And yet, the government persists in its costly, racist and counterproductive criminalization of marijuana. We learned our lessons decades ago with alcohol prohibition; it is long overdue for us to do the same with marijuana prohibition’(Edward & McCray, 2012; para. 5).

Taking the long view, the above explanations seem defensible: The cost of marijuana prohibition has grown into an out-of-control monster tearing at the individual states’ budgets. The estimates made by the American Civil Liberties Union(ACLU) - a nonprofit organization committed to preserving and defending individual rights and liberties in United States – offers a vantage point from which to understand the magnitude of these costs .

According to ACLU estimates, the United States spent a total of $3.613 billion in enforcing marijuana possession laws in 2010. In the same year, states spent an estimated $1.7 billion policing marijuana possession arrests, $1.4 billion adjudicating marijuana possession cases, and $0.5 billion incarcerating individuals for marijuana possession (ACLU, 2013).

The bottom line is that correction expenditures associated with marijuana possession enforcement has continued to be significant even when all state fiscal spending on prison facilities are discounted. For example, in 2010 some states like Florida, California, Texas, Illinois and New York each spent more than $20 million of their taxpayers’ money in housing individuals in local jail and county jails for possession of marijuana, with New York and California spending a staggering $65 million apiece(ACLU, 2013).

The government has spent billions of dollars on marijuana arrests – with little to show for it. In other words, prohibition had not made the marijuana market to go away. Instead, marijuana prohibition in the United States has simply given criminals and violent gangs an exclusive franchise to operate nationwide, and the American society is paying the stiff price on a daily basis: in money(in the form of marijuana law enforcement costs – money that could be used to fix American public schools, strengthen social security or protect the country from the vagaries of terrorism), in ruined lives and harm done to the society, and in the bloodsheds that inevitably comes with prohibition. The surge in marijuana possession arrests as well as the high cost of marijuana prohibition has thus fed a fierce nationwide outcry for reform. So why not pull the plug?

Time to hug the Golden Goose
Given that the criminalization of marijuana in the United States has continued to make both potential and actual criminals billions of dollars annually, it makes sense for the U.S. politicians as well as its residents to have a look in the rearview mirror: Judged from a historical perspective, the current prohibition of marijuana consumption, particularly in the United States, parallels the 1920s alcohol prohibition. And like booze after the Prohibition era, marijuana can contribute tens of billions of dollars to the individual states tax revenues when it became legalized.

How much tax revenue can be made from this single substance? In their 2010 report on the budgetary impact of ending drug prohibition, Jeffrey Miron and Katherine Waldock of the Cato Institute, a think-thank, estimated that drug legalization in U.S. would yield tax revenue of $46.7 billion annually, with $8.7 billion of this revenue expected to result from the legalization of marijuana. To get these values, these researchers followed a very simple but pragmatic approach. First, they estimated the amount that U.S. consumers spends on drugs under prohibition, including marijuana.

Next, they estimated the U.S. consumer’s retail expenditures that is likely to occur when those drugs becomes legalized. Finally, based on assumptions about the kinds of taxes that would apply to legalized drugs, they computed an estimate of the tax revenues that would result from the consumers expenditures likely to occur under legalization(Miron & Waldock, 2010).

While the results of their analyses were very remarkable, it is necessary to realize that half of this fiscal(or revenue) improvement will come from reduced criminal justice expenditure. The oddity here is that for this component of the impact to show up in government budgets, policy makers across the various states of the nation may need to lay off some a significant number of law enforcement agents, including the prison guards, prosecutors and the police.

However, such moves may never occur since they would be too politically painful. The upshot is that affected law enforcement agents and other criminal justice resources can be re-deployed to other areas where they may be needed.

For America, the fact that the tax revenue from marijuana sales can keep the much-needed funds flowing into the individual states’ coffers while they record lower crime rates is a testament that legalization is a more better approach than prohibition. In a practical sense, it is actually a good example of a tried-and-true strategy for managing controlled substances. A controversial approach? Perhaps. Proven effective before? Definitely, by the positive outcomes from the 21st Amendment which legalized the production, sale and consumption of alcohol.

ACLU(2013): The War on Marijuana in Black and White. Retrieved April 10, 2014 from

Edwards E., McCray R.(2012): Hundreds of Economists: Marijuana Prohibition Costs Billions, Legalization Would Earn Billions. American Civil Liberties Union. Retrieved April 10, 2014 from

Gallup Politics(2013): For First Time, Americans Favor Legalizing Marijuana. Retrieved April 10, 2014 from

Gieringer D.(1994): NORMAL’s Marijuana Health Mythology. Retrieved April 10, 2014 from

Governing(2014): State Marijuana Law Map. Retrieved April 10, 2014 from

Miron J.A., Waldock K.(2010): The Budgetary Impact of Ending Drug Prohibition. Cato Institute. Retrieved April 10, 2014 from

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