Jon Gettman is a long time contributor to HIGH TIMES. A former National Director of NORML, Jon has a Ph.D. in public policy and regional economic development and consults with attorneys, advocates, and non-profits on cannabis related research and public policy issues. On October 8, 2002, along with a coalition of organizations, he filed a new petition to have cannabis rescheduled under federal law. This column will track that petition's progress.
Marijuana Laws Cost Government $42 Billion Annually
Americans consume about 31 million pounds of marijuana every year at an estimated retail cost of $3,570 per pound. That adds up to an expenditure of $113 billion annually, all of it going into an illicit economy untaxed by the federal government.
As explained by a new report in the Bulletin of Cannabis Reform the illegality of marijuana costs local, state, and the federal government billions in tax revenue. According to the federal Office of Management and Budget 28.7% of the gross domestic product – the total economic output of the country in a year – ends up in government’s hands as tax revenue. So, the diversion of money into the marijuana market costs the government $31.1 billion annually.
Marijuana arrests account for 5.54% of all arrests in the United States, which spends $193 billion annually on its criminal justice system. As such, marijuana arrests account for $10.7 billion annually in criminal justice expenses.
The report, “Lost Taxes and Other Costs of Marijuana Laws,” provides a comprehensive look at the impact of marijuana laws, examining recent statistics of the marijuana supply, marijuana prices, usage, and availability.
“The social and economic costs of drug abuse are often used to justify contemporary policies which treat marijuana use, cultivation, and sale as criminal offenses in most of the United States. These costs are frequently an excuse to refuse to consider whether alternative policies might be more effective. For example, it is argued that marijuana's legalization cannot be considered because legalization would result in a substantial increase in its use and would produce unacceptable increases in the social and economic costs of drug abuse. This report challenges the premise of such an argument by looking at both the costs and results of current policies.”
It’s not a question of how much tax revenue could be gained if marijuana were taxed in a legal market, the important point of this report is how much tax revenue is lost every year because of current policies and laws. If the $113 billion spend on marijuana were spend on other (legal) consumer goods, it would produce revenue in the form of income taxes, taxes on corporate profits, and social security taxes.
Leaving aside the costs of law enforcement, state and local governments are losing $11.6 billion a year from the diversion of spending to the illicit marijuana market. The federal government is losing $9 billion annually in income tax, $3 billion in corporate taxes, and $7.2 billion in social security revenue.
How much revenue would marijuana generate if it were legal and taxed? That’s hard to estimate because of uncertainty over how many people would grow their own, how much the price would drop from competition, and just how much would be added to the price by way of special excise taxes such as those added to the price of alcohol and tobacco. But what is certain is that the diversion of money from the legal taxable economy into the illegal untaxed marijuana market is a costly proposition.
Politicians like to spend money. They need new sources of revenue to pay for roads, health insurance, and national defense – to name a few important spending priorities. However it’s not just that legalization will produce more revenue for the government that politicians need to be educated about, they also need to be reminded that current laws aren’t providing any control over marijuana use and its availability to minors.
According to the report: “Federally-funded surveys indicate that marijuana has remained widely available over the last 25 years. The Monitoring the Future Survey indicates that since 1992 surveys report that at least 2 out of 5 eighth grade students, 2 out of 3 10th grade students, and 4 out of 5 high school seniors find marijuana widely available. Despite marginal changes in annual data, marijuana use in the United States has remained fundamentally unchanged in the last decade and a half. Since the beginning of annual surveys on drug use (now called the National Survey on Drug Use and Health) in 1990 the average level of annual marijuana use has been 9.3% (Â± 1%) of the population age 12 and over. In 1990 10.2% of this population used marijuana in the last year, and in 2005 annual usage was at 10.5%.”
Bottom line – marijuana prohibition is a costly failure. Is there any better argument for legalization? Of course there is! Marijuana prohibition is unjust. It is fundamentally unjust to arrest people for marijuana use, especially those who use it for medical reasons. However many politicians, even those sympathetic to marijuana reform, don’t believe those reasons appeal to the many of their constituents. What does matter to the general public, though, is the increasing cost of government and the unacceptable burden of paying for it. For these citizens, the bottom-line is what counts. For them, the $42 billion annual cost of marijuana prohibition is something new to think about.