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Legalizing Drugs Would Boost US Budgets By $100 Billion, Harvard Researcher Concludes

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Ending the prohibition of marijuana and other currently illegal drugs and instead taxing and regulating their sales would supplement federal and state government budgets to the tune of up to $106.7 billion a year, according to a new analysis from a Harvard University researcher.

“At both the federal and state levels, government budgets would benefit enormously from drug legalization policies,” Jeffrey Miron, director of undergraduate studies in the Department of Economics at Harvard University, wrote in the report published on Monday by the libertarian Cato Institute.

“This report estimates that $47.9 billion is spent annually on drug prohibition enforcement, whereas $58.8 billion could potentially be raised in tax revenue.”

Miron, who also serves as director of economic studies at Cato, published a previous estimate of the economic impact of legalizing cannabis and other drugs in 2010, but actual revenues from states that have since legalized marijuana blew those projections out of the water.

“Washington collected nearly $70 million in marijuana tax revenues during the first year of legalization, almost exactly the estimate in the 2010 report once adjusted for inflation. In fiscal year 2016, however, Washington collected nearly triple that amount, and in fiscal year 2017 tax revenues reached nearly $320 million. Oregon collected only $20.6 million in fiscal year 2016, about half the 2010 estimate, but it collected $70.3 million in fiscal year 2017, well above the 2010 estimate. In Colorado, marijuana tax revenues have risen from $67.6 million in calendar year 2014 to $247.4 million in calendar year 2017. Even adjusting for inflation, those figures far outstrip the 2010 estimates as well as the updated estimates presented in this paper.”

In the new analysis, Miron speculates that the real numbers could be higher because of robust cannabis tourism in legalization state so far, or it could be because marijuana prices haven’t fallen as far as he initially projected would occur under legalization.

“Revenues may continue to increase over time as more stores open or if demand increases as a result of greater cultural acceptance of marijuana,” he wrote. “But revenues in existing legalization states may also moderate if other states or the federal government legalize marijuana. Another consideration is that a nontrivial share of tax revenue in Colorado, Oregon, and Washington has been generated from collection of one-time application and licensing fees… As recreational marijuana becomes a more established industry, states will likely see a decline in the number of new entrants and therefore a decline in licensing revenue.”

Aside from revenues, Miron also looks at potential criminal justice cost savings resulting from the end of drug prohibition, which he estimates are “likely to be modest in practice, even if the number of drug arrests falls substantially.”

“Early experience suggests that governments will reallocate rather than reduce those expenditures.”

See below for Miron’s state-by-state calculations on the impact of drug legalization, courtesy of Cato:

Table 1: State and local expenditures attributable to drug prohibition, billions of dollars, 2016

All drugs Heroin/cocaine Marijuana Synthetic Other
29.37 12.78 6.04 4.93 5.62

 

Table 2: State and local expenditures attributable to drug prohibition, millions of dollars, 2016

State All drugs Marijuana Heroin/cocaine Other
United States 29,374.9 6,036.9 12,779.2 10,555.4
Alabama 252.9 51.2 111.5 90.2
Alaska 111.8 17.4 54.0 40.4
Arizona 615.1 96.7 286.3 232.0
Arkansas 192.9 40.3 82.8 69.9
California 5,963.4 951.4 2,718.4 2,293.0
Colorado 422.3 64.2 200.1 157.9
Connecticut 314.9 74.1 142.3 98.5
Delaware 113.5 25.1 48.5 39.9
Florida 1,170.0 180.4 564.3 425.2
Georgia 1,339.2 424.0 457.9 457.8
Hawaii 172.6 33.9 72.8 65.8
Idaho 140.7 23.2 63.8 53.7
Illinois 713.1 125.4 334.9 252.7
Indiana 637.6 236.5 193.0 207.4
Iowa 204.8 59.0 77.1 68.5
Kansas 206.5 54.2 81.5 70.7
Kentucky 276.9 56.8 122.2 97.9
Louisiana 376.2 72.2 170.0 133.9
Maine 174.5 63.5 67.1 44.0
Maryland 514.9 77.5 248.7 188.6
Massachusetts 481.0 115.5 215.5 150.0
Michigan 860.3 200.9 356.2 302.7
Minnesota 443.5 130.7 164.1 148.4
Mississippi 278.7 86.3 96.9 95.6
Missouri 335.8 76.6 141.5 117.5
Montana 160.4 28.7 68.4 63.3
Nebraska 147.2 31.1 63.2 52.8
Nevada 223.3 34.6 106.6 82.1
New Hampshire 175.7 65.2 67.0 43.5
New Jersey 669.3 117.8 320.5 231.0
New Mexico 345.1 59.3 149.4 136.4
New York 1,889.6 308.8 915.1 665.4
North Carolina 891.2 263.3 319.0 309.3
North Dakota 310.7 153.7 62.6 94.0
Ohio 650.2 111.0 311.3 227.7
Oklahoma 589.5 209.5 182.1 198.2
Oregon 375.4 57.2 177.7 140.4
Pennsylvania 1,033.0 179.6 493.7 359.6
Rhode Island 203.6 76.1 77.4 50.2
South Carolina 244.7 47.4 108.9 88.4
South Dakota 158.8 67.5 40.9 50.2
Tennessee 342.7 53.9 165.1 123.7
Texas 1,711.5 291.3 798.2 621.9
Utah 767.3 151.9 300.1 315.3
Vermont 69.3 19.5 29.5 20.4
Virginia 602.1 81.2 296.1 224.7
Washington 545.8 82.4 259.3 204.0
West Virginia 270.1 94.5 85.4 90.3
Wisconsin 414.8 62.7 199.1 152.9
Wyoming 223.5 42.9 89.3 91.3
District of Columbia 47.2 8.5 22.0 16.7

 

Table 3: Federal expenditures attributable to drug prohibition, billions of dollars, 2015 (in 2016 dollars)

All drugs Marijuana Cocaine Heroin Other
18.47 3.96 8.42 1.47 4.61

 

Table 4: State and federal tax revenues from drug legalization, billions of dollars, 2016

Total Marijuana Cocaine Heroin Other
Federal revenues 39.21 8.04 17.28 10.18 3.71
State revenues 19.60 4.02 8.64 5.09 1.86

 

Table 5: State tax revenues from drug legalization, distributed by population, millions of dollars, 2016

State Total Marijuana Cocaine Heroin Other
All states 19,603.33 4,020.00 8,640.00 5,090.00 1,856.67
Alabama 296.52 60.81 130.69 76.99 28.08
Alaska 45.07 9.24 19.86 11.70 4.27
Arizona 416.48 85.41 183.56 108.14 39.45
Arkansas 181.91 37.30 80.18 47.23 17.23
California 2,382.11 488.49 1,049.89 618.51 225.61
Colorado 332.86 68.26 146.71 86.43 31.53
Connecticut 218.99 44.91 96.52 56.86 20.74
Delaware 57.67 11.83 25.42 14.97 5.46
Florida 1,236.75 253.62 545.09 321.12 117.13
Georgia 623.07 127.77 274.61 161.78 59.01
Hawaii 87.06 17.85 38.37 22.61 8.25
Idaho 100.97 20.71 44.50 26.22 9.56
Illinois 784.33 160.84 345.69 203.65 74.29
Indiana 403.97 82.84 178.05 104.89 38.26
Iowa 190.72 39.11 84.06 49.52 18.06
Kansas 177.57 36.41 78.26 46.11 16.82
Kentucky 270.30 55.43 119.13 70.18 25.60
Louisiana 285.22 58.49 125.71 74.06 27.01
Maine 81.22 16.65 35.79 21.09 7.69
Maryland 366.23 75.10 161.41 95.09 34.69
Massachusetts 414.44 84.99 182.66 107.61 39.25
Michigan 605.87 124.24 267.03 157.31 57.38
Minnesota 334.92 68.68 147.61 86.96 31.72
Mississippi 182.62 37.45 80.49 47.42 17.30
Missouri 371.19 76.12 163.60 96.38 35.16
Montana 63.05 12.93 27.79 16.37 5.97
Nebraska 115.69 23.72 50.99 30.04 10.96
Nevada 176.17 36.13 77.64 45.74 16.69
New Hampshire 81.26 16.66 35.81 21.10 7.70
New Jersey 545.86 111.94 240.58 141.73 51.70
New Mexico 127.09 26.06 56.01 33.00 12.04
New York 1,206.34 247.38 531.68 313.23 114.25
North Carolina 613.04 125.71 270.19 159.18 58.06
North Dakota 46.23 9.48 20.38 12.00 4.38
Ohio 708.95 145.38 312.46 184.08 67.15
Oklahoma 238.70 48.95 105.21 61.98 22.61
Oregon 245.86 50.42 108.36 63.84 23.29
Pennsylvania 781.45 160.25 344.42 202.90 74.01
Rhode Island 64.49 13.22 28.42 16.74 6.11
South Carolina 299.02 61.32 131.79 77.64 28.32
South Dakota 52.41 10.75 23.10 13.61 4.96
Tennessee 402.89 82.62 177.57 104.61 38.16
Texas 1,675.66 343.62 738.53 435.08 158.70
Utah 182.70 37.46 80.52 47.44 17.30
Vermont 38.25 7.84 16.86 9.93 3.62
Virginia 511.17 104.82 225.29 132.73 48.41
Washington 437.42 89.70 192.79 113.58 41.43
West Virginia 112.47 23.06 49.57 29.20 10.65
Wisconsin 352.36 72.26 155.30 91.49 33.37
Wyoming 35.83 7.35 15.79 9.30 3.39
District of Columbia 40.95 8.40 18.05 10.63 3.88

 

Table 6: Summary of expenditure savings and additional revenues from drug legalization, billions of dollars, 2016

All drugs Marijuana Heroin/cocaine Other
Expenditures State 29.4 6.0 12.8 10.6
  Federal 18.5 4.0 9.9 4.6
Total 47.9 10.0 22.7 15.2
Revenues State 19.6 4.0 13.7 1.9
  Federal 39.2 8.0 27.5 3.7
Total 58.8 12.0 41.2 5.6

 

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Tom Angell is the editor of Marijuana Moment. A 20-year veteran in the cannabis law reform movement, he covers the policy and politics of marijuana. Separately, he founded the nonprofit Marijuana Majority. Previously he reported for Marijuana.com and MassRoots, and handled media relations and campaigns for Law Enforcement Against Prohibition and Students for Sensible Drug Policy.

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