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Like many of you, the staff at MJO has been closely following the stimulus proceedings in Washington. While President Obama was able to use his mandate to push through a $787 billion spending plan in record-breaking time, several states were still facing the difficult propositions of budget deficits and, unlike the federal government, states are not allowed to go into the red to pay for their programs. After watching CNBC's Marijuana, Inc. and other documentaries about the marijuana industry (reviews coming soon!), we have been thoroughly convinced that marijuana is a multi-billion dollar business. Thus, we at the MJO were curious: 1) Would legalization and taxation of marijuana provide significant revenue to the states? and 2) Is the political climate ripe for such a drastic change in American marijuana public policy?The issue of state budget shortfalls has become more acute this week with the state of California's maneuverings to remain solvent. California is facing a budget deficit of some $42 billion dollars, with a $11.2 billion revenue shortfall for this year alone. This Tuesday, in order to motivate California Senate Republicans to agree to the proposed Schwarzenegger/Democrat budget, Schwarzenegger sent out 10,000 layoff notices to state workers. In order to avoid the laying off of another 10,000 state workers (as promised by the Governator if no budget was agreed upon) state lawmakers finally passed California's 2009 state budget. California's problems may be more pronounced, but other states are also facing huge deficits.
When one considers that illegal marijuana sales have been estimated to exceed $14 billion a year nationally, a figure larger than California's yearly budget shortfalls, one has to at least consider the possibility of taxing marijuana for fundraising purposes. But, of course, the entire $14 billion would not go to the states, so what kind of tax revenue are we really looking at? Luckily, Jefferey Miron, a Harvard economics professor, has done the calculations for us in his landmark paper, "The Budgetary Implications of Marijuana Prohibition." We recommend you read the entire report, but Miron's somewhat conservative conclusion is that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana was taxed like all other goods and $6.2 billion if marijuana was to be taxed at rates similar to alcohol or tobacco. But it doesn't stop there, Miron also estimates that legalizing marijuana would save $7.7 billion per year in government expenditure due to prohibition enforcement. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
Making the safe assumption that marijuana would be subject to a sin tax like alcohol and cigarettes, that leads to a total governmental savings of $13.9 billion dollars. While this figure pales in comparison to recent government stimulus packages, it is still a quite a bit of money. Moreover, while no state would reap as much as California, every state would make at least some revenue. And before Morin is dismissed as a pothead or crackpot New England liberal, it must be noted that 500 prominent economists signed a letter agreeing to his findings including Nobel Laureates Vernon Smith, George Akerlof, and the godfather of free-market economics himself Milton Friedman.
This leads us to our second question, is the political climate right for such a drastic change in American drug policies? Recently, Zogby International released a poll commissioned by the California arm of the National Organization for the Reform of Marijuana Laws indicated that 58% of respondents from the west coast of the United States favored legalizing marijuana and taxing it like alcohol or cigarettes, while only 36% opposed the regulated sale of marijuana. This cannot be characterized as a purely west coast phenomena either, as a more mainstream poll commissioned by CBS and The New York Times revealed that 41% of Americans nationwide favored legalization, as opposed to 27% in 1979. It must be noted that the latter poll did not ask any questions about taxation or states revenue-raising, so responses may be more favorable in a subsequent poll incorporating either of these concepts.
Ultimately, even the best-case figure of 58% is probably not a high-enough percentage of people to change a marijuana narco-policy that has been well-established for years. With the populace trending younger and thus less prohibitionist, one day it may be politically possible to advocate marijuana legalization. However, with states facing ever-increasing budget deficits and calls to raise personal income taxes to meet them potentially forthcoming, perhaps we are approaching the time when calling for marijuana legalization and taxation becomes politically necessary and not just politically possible.
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