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Could Legalizing Marijuana Save the Economy?

Economic implications of legalized marijuana

There are many that are touting the legalization of marijuana as a means to help stimulate an ailing economy. I know there are differing views on the topic of legalization of marijuana. There are concerns of short and long-term health hazards, the danger of access to children and debates on a variety of other related topics. However, I am only here to discuss the economics of legalization. I will leave the moral and social implications to the theologians and philosophers.

In analyzing the economics of legalizing marijuana, you must first consider the cost associated with it being illegal. In a random selection of data, according to the Department of Justice, in the 3 months between October 2004 and January 2005, 1,777 offenders were processed for marijuana laws in the U.S. Of those, 94.9% were for trafficking. There is a huge cost associated with this enforcement of marijuana laws. According to NORML (National Organization for the Reform of Marijuana Laws), the annual cost to federal, state and local agencies to enforce marijuana laws is $7.6 billion of our tax dollars.

If however, marijuana were legal and taxed like other vices, there is indeed a nice chunk of change to be had by federal, state and local taxing authorities. Prof. Jeffery Miron, an economist at Harvard University has stated that federal tax revenue could be around $6 billion annually. Additionally, CNN Money suggests that an estimated $787 million in revenue for states would derived from legalized marijuana. There is no solid data on the tax revenues generated by county and local governments, but you can be sure there would be additional funds pouring into those coffers as well. This is a big “pot” of revenue to be sure.

Combine the savings from enforcement of marijuana laws with the revenues estimated from taxation and you add over $14 billion annually to state and federal coffers. Additionally, peripheral and support industries will no doubt spring up from legalization of marijuana. The benefit of the new dynamic of the legal marijuana market is the creation of industry related jobs. Prof. Miron states that as many as 50,000 new jobs could be created as a direct result of legalization. This does not count the thousands of new jobs created as an indirect result of legal marijuana. Even if you were to calculate those new jobs at a minimum wage rate, it would equate to nearly $800 Million in annual income for Americans needing jobs. However, in reality, this figure would be much higher and would easily surpass $1 Billion a year in wages.

So, to recap, $14 Billion a year in enforcement savings and tax revenue, 50,000 new jobs with income in excess of $1 Billion annually. Seems like a no brainer. But there is one more element to consider and that is the criminal element. Billions of dollars are funneled annually to drug cartels in central and south America and to gangs in our own streets. And though I make no claim here that legalizing marijuana would put these nefarious people out of business, but it would make a major dent in their revenue streams and eliminate their income from this black market commodity.

So, can legalizing marijuana save the economy? On it’s own, no. The combined income and savings amount to about the same as NASA’s 2010 annual budget. However, in a time when government agencies are scrambling for every dime they can uncover and average Americans are screaming for jobs, this could at the minimum be a good kick-start towards an economic recovery.

Sources:

CNN Money - http://money.cnn.com/pf/features/lists/taxes_marijuana/revenue.html

NORML - http://norml.org/index.cfm?Group_ID=6476

US Dept of Justice - http://www.ojp.usdoj.gov/bjs/abstract/cfjs03.htm

Writings of Prof. Jeffrey Miron - http://www.prohibitioncosts.org/mironreport.html

NASA - http://www.nasa.gov/home/hqnews/2009/may/HQ_09-102_FY2010Budget.html

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Comments (2)

very nicely wrote, you are someone to watch. However i do have a feeling you are missing something, but i have no idea what it is, great job.

mw

You forgot to account for the hemp industry bomb if legalization were to occur.

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