Could federal cannabis legalization boost the economy? Intuitively, the answer is clearly, obviously, emphatically yes. States with legal weed are generating significant revenue from taxes and fees paid by growers, consumers and everyone in between. Furthermore, many states passed laws legalizing marijuana after economic impact assessments outlined the potential economic incentives if they did. Not just taxes, but increased employment and further incentives for private investment. So why wouldn’t the country as a whole see the same boosts to the economy if the federal government legalized cannabis?
Could Federal Cannabis Legalization Boost The Economy?
While most states with legal marijuana programs conducted some kind of economic impact assessment, not many studies look at the potential economic impact of federal legalization.
And as a result, advocates frame most of the conversation about economic gains at the federal level through the lens of the costs legal weed would allow the government to eliminate. In short, it’s all about what the government would save, not what it would gain. And we know those costs.
That argument, of course, is the familiar and well-worn story of the abject failure of the War on Drugs.
The exorbitant costs of the drug war defy any rational explanation, especially when viewed alongside its failure to stem the flow of drugs or reduce drug use and abuse among the population.
The Drug Policy Alliance has a good cheat sheet highlighting the most jaw-dropping drug war statistics, including the $50+ billion the U.S. spends every year to enforce its drug laws and lock up largely non-violent drug offenders. And that figure leaves out the secondary and indirect costs to communities targeted by racially biased and politically motivated drug enforcement practices.
But a new study by New Frontier Data actually asks the question of economic benefits from the perspective of what the nation stands to gain.
New Study Identifies Three Ways Ending Federal Prohibition Would Boost The Economy
New Frontier Data is a research and marketing firm. Their stated mission is to “inform cannabis-related policy and business decisions through rigorous, issue-neutral and comprehensive analysis of the legal cannabis industry.”
And their report highlights that the government would do quite well if cannabis were taxed as a legal commodity, according to Common Dreams.
New Frontier CEO Giadha Aguirre De Carcer explained: “The three most common business taxes that any standard business pays to the federal government are federal business taxes, payroll taxes and sales tax.”
The study demonstrates that combining those three tax bases could produce an estimated $131.8 billion in revenue by 2025.
Here’s a breakdown of New Frontier’s most important conclusions.
1. Payroll Taxes
Let’s start with payroll taxes. According to New Frontier, legalizing cannabis tomorrow would create 782,000 jobs virtually overnight. By 2025, the firm projects employment would increase to 1.1 million jobs. More jobs mean more employees on payroll, which means $4 billion in payroll taxes this year, and $5.9 billion by 2025.
2. Sales Taxes
New Frontier’s analysis assumed a 15 percent sales tax on cannabis products. Between 2018 and 2025, that would mean $51.7 billion in completely new revenue to the U.S. Treasury. The federal government doesn’t collect sales tax from cannabis sales currently. But they do collect business taxes from state-legal businesses.
3. Business Taxes
That’s right. Even though the federal government considers them illegal, cannabis businesses still have to pay federal taxes. Assuming that legal weed businesses would have the same tax rate as other businesses, 35 percent for 2017, they would pay $12.6 billion into the U.S. economy.
Admittedly, this is the weakest point of New Frontier’s analysis. The Republican tax plan drastically reduces taxes for corporations. In 2018, the corporate tax rate will be 21 percent, not 35.
Could Federal Cannabis Legalization Boost The Economy? Yes! Of Course!
Still, New Frontier Data’s new study is the latest to demonstrate the economic benefits of ending the federal ban on cannabis. Could federal cannabis legalization boost the economy? Yes! Of course!
Then again, all of it is rather hypothetical, so long as Jeff Sessions is Donald Trump’s Attorney General. Sessions recently vowed to ramp up federal enforcement even in states where voters legalized recreational and medical cannabis. Under a Sessions DOJ, we’re unlikely to see federal legalization anytime soon. For now, then, these economic benefits will have to wait in the wings.