What Could We Expect in Federal, State and Local Revenue Increases if Recreational Drugs Were Legalized? … by Alice B. Clagett *

Published on 20 April 2018

  • $27.8B FEDERAL DRUG CONTROL ANNUAL EXPENSE
  • $132B ESTIMATED ANNUAL INCREASE IN TAX REVENUES FROM NATIONWIDE LEGALIZATION OF MARIJUANA
  • $708.6B ESTIMATED INCREASE IN TAX REVENUES FROM NATIONWIDE LEGALIZATION OF ALL RECREATIONAL DRUGS
  • $686.2B ESTIMATED ANNUAL NET IMPROVEMENT IN THE FEDERAL BOTTOM LINE
  • $17B ESTIMATED ANNUAL IMPROVEMENT IN THE STATE AND LOCAL BOTTOM LINE DUE TO ‘SIN TAX’ INCREASES
  • FEDERAL LEGISLATION THAT MIGHT GET AROUND THE MORAL ISSUE STATES HAVE WITH LEGALIZATION OF DRUGS

Dear Ones,

$27.8B FEDERAL DRUG CONTROL ANNUAL EXPENSE

According to Forbes, the war on drugs costs the United States over $78 billion a year

Link: “Doc Series ‘The Trade’: The War On Drugs Costs The U.S. Over $78B A Year,” by Dana Feldman, contributor, in Forbes, 9 February 2018, https://www.forbes.com/sites/danafeldman/2018/02/09/doc-series-the-trade-the-war-on-drugs-costs-the-u-s-over-78b-a-year/#3076314a2c1b .. 

However, this includes addiction treatment, healthcare, and lost job productivity in addition to federal drug control expense. As it is the federal drug control expense that would be curtailed by legalization, I looked that up. The federal drug control expense for 2018 is estimated to be $27.8 billion dollars … That would mean the other costs … addiction treatment, healthcare, and lost job productivity … tally about $50.2 billion dollars a year.

LInk: “Total federal drug control spending in the United States from FY 2013 to FY 2018 (in million U.S. dollars),” in Statista: The Statistics Portal, https://www.statista.com/statistics/618857/total-federal-drug-control-spending-in-us/ ..

$132B ESTIMATED ANNUAL INCREASE IN TAX REVENUES FROM NATIONWIDE LEGALIZATION OF MARIJUANA

According to the Washington Post, nationwide legalization of marijuana might result in $132 billion tax revenues annually

Link: “Post Nation: Study: Legal marijuana could generate more than $132 billion in federal tax revenue and 1 million jobs,” by Katie Zezima, 10 January 2018, https://www.washingtonpost.com/national/2018/01/10/study-legal-marijuana-could-generate-more-than-132-billion-in-federal-tax-revenue-and-1-million-jobs/?utm_term=.dee696c70135 ..

It seems to me that generation of jobs is a moot point in the above article, since the jobs are already there, in our economy, but just not included in the job statistics. Further, income tax revenue from legalization of these jobs is included as part of the $132 billion revenue figure in the above article.

So, the important figure there is the $132 billion annual revenue for nationwide legalization of marijuana, I note this figure takes into account payroll tax deductions, a retail sales tax of 15 percent, and business tax revenues, which seems appropriate to me. I note also they are calculating federal revenue rather than state or local revenue (i.e., ‘sin taxes’).

$708.6B ESTIMATED INCREASE IN TAX REVENUES FROM NATIONWIDE LEGALIZATION OF ALL RECREATIONAL DRUGS

I was unable to find comparable estimates for generation of revenue from legalization of sales of all categories of recreational drugs, including marijuana, cocaine, heroin, and other recreational drugs. However, this may be estimated as follows:

According to a 2010 Cato Institute report, the ratio of tax revenues for legalization of all drugs, to tax revenues for legalization of marijuana, was 46.7B : 8.7B. For these data, see …

Link: “Commentary: Making an Economic Case for Legalizing Drugs,” by Jeffrey Miron and Katherine Waldock. This article appeared in The Philadelphia Inquirer on October 3, 2010 … https://www.cato.org/publications/commentary/making-economic-case-legalizing-drugs ..

Plugging this ratio into the more recent estimate of $132B annual marijuana revenue, we get:

46.7B / 8.7B = X / 132B  … and

X = $708.6B … X being the current estimated annual revenues for legalization of all drugs nationwide.

$686.2B ESTIMATED ANNUAL NET IMPROVEMENT IN THE FEDERAL BOTTOM LINE

This estimate of $708.6B may be on the high side. However, going with this figure, and using the prior bolded figures, let’s consider what federal revenue changes might take place if all recreational drugs were legalized nationwide.

  • The current $50.2 billion dollar cost for addiction treatment, healthcare, and lost job productivity would stay roughly the same.
  • The current $27.8 billion dollar annual federal drug control expense would be greatly curtailed.
  • The current estimated annual revenues for legalization of all drugs nationwide would be $708.6B.

On the plus side for the federal government are the last two bullets: $27.8B plus $708.6B = a total of $736.4B total ‘fattening of the federal coffers’.

This increase in the federal bottom line might resolve the issue of the first-bullet minus: A portion of the federal increase might be set aside to completely cover the $50.2 billion dollar annual cost for addiction treatment, healthcare, and lost job productivity would stay roughly the same.

This would leave a net improvement in the federal bottom line of $736.4B less $50.2B = net $686.2B. 

$17B ESTIMATED ANNUAL IMPROVEMENT IN THE STATE AND LOCAL BOTTOM LINE DUE TO ‘SIN TAX’ INCREASES

An added plus would be sin taxes on that might optionally be levied by state and local governments. In 2014, state sin taxes for were $32.5B for currently legal activities and products such as alcohol, tobacco, casino, racino, and gaming. The largest category was tobacco at $16.9B.

The retail value of 2017 annual tobacco sales in the United States was about $121B

Link: “Market value of tobacco in the United States from 2013 to 2018 (in million U.S. dollars),” in Statista: The Statistics Portal,” https://www.statista.com/statistics/491709/tobacco-united-states-market-value/ ..

From 2000 to 2010, Americans spend about $100B annually on illegal drugs, including cocaine, marijuana, heroin, and methamphetamine, according to the RAND Drug Policy Research Center for the Office of National Drug Control Policy. This is the most recent figure I have on the market value of illegal drugs in the United States, so I’ll go with this.

Link: “Americans Spent About A Trillion Dollars On Illegal Drugs In The Last Decade,” by Matt Ferner, 13 March 2014, Huffington Post, https://www.huffingtonpost.com/2014/03/13/americans-trillion-dollars-drugs_n_4943601.html ..

Looking at these two figures: 2017 annual tobacco sales at $121B, and 2010 estimated annual illegal drug sales at $100 billion, we might consider these to be roughly equal.

Thus the sin tax on legalized recreational drugs sales might be anticipated to be about what states and local governments receive in annual sin tax for tobacco: that is, about $17B annually.

FEDERAL LEGISLATION THAT MIGHT GET AROUND THE MORAL ISSUE STATES HAVE WITH LEGALIZATION OF DRUGS

This crunching of the figures makes it clear that the most logical thing to do would be to legalize all recreational drugs, and generate federal and state revenues from their sales. However, many people in the United States have strong moral stands on recreational drugs.

In fact, the fury over legalization, or criminalization, of recreational drug use in America today is very similar to the fury over alcohol use that resulted in Prohibition … a ban on alcohol sales and use from 1920 to 1933. As I understand it, criminal activity around ‘bootlegging’ skyrocketed during those years. Then when Prohibition was repealed in 1933, the crime wave abated, and federal and local governments began to benefit from liquor revenues.

I feel we might have the same benefits with regard to recreational drugs in this way:

  • The federal government might legalize all recreational drug use and sales.
  • States might have the power to prohibit recreational drug use and sales, either altogether or in part.
  • Those states that legalize recreational drug use and sales, either altogether or in part, might get the benefit of remuneration by the federal government, based on increased federal revenues from recreational drug sales in their state.
  • Federal remuneration to states that decide to legalize recreational drugs might be earmarked for drug-use-related health care, addiction treatment, and health education for schools, and for drug users and their families.

In love, light and joy,
I Am of the Stars

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SUPPLEMENTAL INFORMATION

Tobacco tax revenues in the United States are expected to be about $14 billion dollars for the year 2018 …

Link: “Tobacco tax revenue and forecast in the United States from 2000 to 2022* (in billion U.S. dollars).” from Statista: The Statistics Portal, https://www.statista.com/statistics/248964/revenues-from-tobacco-tax-and-forecast-in-the-us/ ..

Liquor tax revenues in the United States are expected to be about $10 billion dollars for the year 2018 …

Link: “Alcohol tax revenue in the United States from 2000 to 2022* (in billion U.S. dollars),” from Statista: The Statistics Portal, https://www.statista.com/statistics/248952/revenues-from-alcohol-tax-and-forecast-in-the-us/ ..

By comparison, itotal United States government receipts for 2018 are expected to be about 3.65 trillion dollars

Link: “Total receipts of the U.S. government in fiscal years 2000 to 2022* (in trillion U.S. dollars),” in Statista: The Statistics Portal, https://www.statista.com/statistics/200405/receipts-of-the-us-government-since-fiscal-year-2000/ ..

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government, law, drug use, legalization of drugs, economy, federal revenues, state and local revenues, sin tax, Prohibition, crime, law enforcement, social issues, mores, morals, drug use, addiction, community health, history, economics, health, education,

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