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Wednesday, Feb. 25, 2009 03:43 pm

The economic argument for legalization

Marijuana may have benefits beyond curing the sick

Marijuana could help Illinois out of its budget mess. Advocates have long supported reforming current state and federal prohibitions against growing, trading and consuming marijuana. But existing evidence of the economic benefits of legalizing, regulating and taxing marijuana is even more compelling, particularly in today’s trying times.

Illinois’ budget gap could be $9 billion by 2010. With some of the nation’s stiffest drug penalties, our state’s corrections system and county jails are bursting with drug users.

It should be noted that there is an important distinction between decriminalization and legalization. Decriminalization removes penalties for possession and consumption but still subjects sellers to prosecution. If marijuana is made legal, it could be regulated like alcohol and tobacco, but also taxed. Either scenario could provide an infusion of revenue to governments, experts say.

The Springfield city council took action toward decriminalization earlier this month, when Ward 2 Ald. Gail Simpson won approval of an ordinance that would empower Springfield police officers to write tickets for possession of less than 2.5 grams of cannabis or drug paraphernalia [See Amanda Robert, “Marijuana fines to help city finances,” Feb. 12].

Not only would some of the $46,165 in fines collected by the county in 2008 go to the coffers of the city, which faced a $12.5 million budget shortfall, the ordinance could help alleviate overcrowding at the Sangamon County jail. In Illinois prisons today there are 574 inmates serving time for primary offenses related to cannabis, at a cost of about $12.6 million to state taxpayers.

“Our current method of arresting, imprisoning, and prosecuting cannabis offenders all costs the taxpayer money and police officers’ time,” says Dan Linn of the Illinois branch of National Organization for the Reform of Marijuana Laws.

These days, government budgets are stretched so thin that they can no longer afford to maintain this prohibition, says Linn whose group favors total legalization.

So why not let taxpayers benefit? “The cannabis market is a viable tax option for our local, state and federal governments, but they’re so entrenched in this war on drugs and war on marijuana that they can’t afford to go back on any of these laws that they’ve been trying to maintain,” Linn says.

However, Linn believes, “A cannabis consumer would much rather purchase a legal product with an excise tax on it than to continue to purchase it illegally through an underground market which also has an inflated price due to its illegality.”

Some scholars also believe that marijuana prohibition keeps as much as $40 billion dollars of tax revenue out of government treasuries.

In September 2007, Jon Gettman, a senior research fellow at George Mason University’s School of Public Policy, published Lost Taxes and Other Costs of Marijuana Laws, a study that concludes that the lost tax revenue from the diversion of funds to the illegal marijuana market combined with the cost of marijuana arrests produce a budgetary cost to local, state and the federal government of $41.8 billion.

He places marijuana’s retail price at $7.87 a gram – a value of $7,871,480 per metric ton – and concludes that the annual supply of 14,349 metric tons of marijuana available in the U.S. is worth $112.9 billion. From there, he calculates lost revenues based the percentage of federal income, social security and state and local sales tax that could be applied if marijuana were legal.

Economic arguments have fallen flat with policymakers thus far, not just because marijuana legalization is a politically touchy subject but because people tend to have ambiguous feelings about marijuana, Gettman says.

“On one hand, most people recognize that marijuana isn’t as dangerous as methamphetimines or heroin and most people do not support sending people to prison for long periods of time. On the other hand they are very uncomfortable, and rightfully so, with the prospect of teenagers gaining access to marijuana.”

However, the “gateway theory,” that marijuana will lead to hard drugs, is largely unproved. And besides, Gettman says, the real danger in marijuana for kids is the fact that there is now a profit incentive for teenagers to sell drugs to one another.

Jeffrey Miron’s research, conducted in 2002, puts the potential tax benefit at $6.2 billion if marijuana were legalized and taxed at rates comparable to cigarettes and alcohol. Though the numbers vary greatly because Gettman’s analysis assumes greater marijuana consumption than does Miron, the men agree in principle: legalization is preferable to decriminalization if the goal is revenue generation.

“From decriminalization you’re not going to get any tax revenue because the sales themselves are still illegal so they’re going to tend to take place underground out of the sight of the police so there’s no easy or obvious way you can tax that,” says Miron, a senior lecturer in economics at Harvard.

Miron agrees that current pressures on government budgets might get marijuana reform arguments slightly more reception with lawmakers. However, he would like to see advocates for repeal to use a different tack and put the onus on proponents of maintaining the status quo.

Historians believe that the desire to raise tax revenue in the 1930s when the depression started was one of the reasons alcohol prohibition was repealed on March 23, 1933, Miron says.

“It’s a reasonable hypothesis, though my sense is that it’s not so likely to happen. I just don’t think there’s much mainstream support for legalizing marijuana in the U.S.,” Miron says.

“I hope I’m wrong, I just don’t think it’s going to make a big difference even though there is a big budget deficit.” —R. L. Nave

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