Autumn 2005
O'Shaughnessy's
Journal of the California Cannabis Research Medical
Group
|
Costs of Prohibition Calculated
(Don't Bogart that Taxable Commodity)
How long can government refrain from taxing instead of prohibiting
the marijuana industry? There would be annual savings of $7.7 billion
and tax revenues of $6.2 billion if marijuana were legalized in the
U.S., according to a recent report by Jeffrey Miron, a Visiting Professor
of Economics at Harvard.
Underwritten by the Marijuana Policy Project, the report projects
savings of $5.3 billion now spent by state and local governments —police
arresting, courts prosecuting, and jails and prisons incarcerating
people for selling marijuana. The federal government would save $2.4
billion by calling off its marijuana interdiction efforts, according
to Miron.
In estimating potential tax revenue, Miron uses the Drug Czar’s
figure of $10.5 billion spent by U.S. residents on marijuana in 2000.
His assumption that legalization would not increase demand probably “biases
the estimated tax revenue downward,” he notes.
He foresees two offsetting effects on supply. On the one hand,
production might rise because “marijuana suppliers in a legal
market would not incur the costs imposed by prohibition, such as
the threat of
arrest, incarceration, fines, asset seizure, and the like... On
the other hand,
marijuana suppliers in a legal market would bear the costs of tax
and regulatory policies that apply to legal goods but that black
market
suppliers normally avoid.”
The report considers a range of taxing options, from treating marijuana
like an ordinary commodity (which would generate $2.4 billion annually)
to a high “sin tax” equivalent to 80% of the price
(would raise $9.5 billion). Miron settles on a rate akin to the
tax on alcohol
and tobacco that would raise the price 50% and produce revenue
of $6.2 billion per year. One of the tables shows how much each
state
stands
to generate.
The Miron report can be viewed at http://www.prohibitioncosts.org/mironreport.html.
Its release by MPP June 2, along with its endorsement by 500 economists,
resulted in a small spate of articles and op-eds. Milton Friedman
reiterated his principled position: “$7.7 billion is a lot of money, but
that is one of the lesser evils. Our failure to successfully enforce
these laws is responsible for the deaths of thousands of people in
Colombia. I haven’t even included the harm to young people. It’s
absolutely disgraceful to think of picking up a 22-year-old for
smoking pot. More disgraceful is the denial of marijuana for
medical purposes.”
On the Forbes website, Quentin Hardy extrapolated from a couple
of sentences in Miron’s report to the possible impact
of legalization on the private sector.
“ If the laws change, large beneficiaries might include large
agricultural groups like Archer Daniels Midland and ConAgra Foods as
potential
growers or distributors and liquor businesses like Constellation Brands
and Allied Domecq, which understand the distribution of intoxicants.
Surprisingly, Home Depot and other home gardening centers would not particularly
benefit, according to the report, which projects that few
people would
grow their own marijuana, the same way few people distill
whiskey at home.”