The Economics of Marijuana Reform
This is a guest post by Cara Bruce at Young Money.
Almost everyone has heard of the ongoing debate in California about whether or not to legalize and tax marijuana. People for legalization stress the added tax revenue marijuana could bring, as well as the money saved by not arresting and imprisoning nonviolent marijuana offenders. They realize that pot is already easy to obtain and that a significant percent of the population is already smoking it. In fact, the 2008 National Survey on Drug Use and Health found that over 102 million Americans, or 41 percent, have smoked pot during their lifetimes.
Opponents claim that the harm caused by legalizing marijuana, a mind altering substance, will far outweigh any possible tax revenue. They cite more children using it; more people driving under the influence causing more accidents, injuries and death; and less worker productivity. They also claim California would still have a thriving black market.
The public opinion regarding pot has changed drastically since the days of Reefer Madness. Our last three Presidents: Bill Clinton, George W. Bush and Barack Obama have all admitted to smoking weed (whether or not they’ve inhaled is another story). It has been almost fifteen years since California decriminalized medical marijuana and President Obama has made it clear to Federal Prosecutors that he doesn’t want them wasting their time with medical marijuana arrests. California has recently polled 56 percent in favor for legalization, and it looks like the 2010 ballot will see some sort of marijuana reform.
Difference between decriminalizing and legalization
To understand the debate, it’s important to understand the difference between decriminalizing something and legalizing something. When something is decriminalized engaging in it is no longer considered a crime. Instead, it is usually considered an infraction. For example, in California if you get caught with a small amount of pot you might get a ticket, usually around $100. So, in short, decriminalization means the removal of laws.
Legalization means the regulation of something (such as marijuana or prostitution). The government would set laws regarding where, when and how these activities could take place. They could also put a system of criminal regulation in place.
The cost of potheads in prison
The War on Drugs Clock states that 800,262 people have been arrested for marijuana so far this year. An American is now arrested for violating cannabis laws every 38 seconds with 89 percent of all marijuana arrests for simple possession. Progressive author Jim Hightower in the November issue of “The Hightower Lowdown,” argues “By even the most conservative estimate, the outlay from us taxpayers now tops $10 billion a year in direct spending just to catch, prosecute, and incarcerate marijuana users and sellers, not counting such indirect costs as militarizing our border with Mexico in a hopeless effort to stop marijuana imports.”
According to the U.S. Bureau of Justice Statistics, taxpayers pay an additional $1 billion annually to house the estimated 50,000 state and federal inmates serving time for marijuana and related offenses.
Harvard University economist Dr. Jeffrey Miron had his paper, “The Budgetary Implications of Marijuana Prohibition,” endorsed by over 500 economists, including Nobel Prize-winner Milton Friedman. In this paper, Miron concludes that instituting legal regulations will save the government $7.7 billion just by not having to enforce current prohibition laws ($2.4 billion at the federal level and $5.3 billion at the state and local levels). He goes on to state that tax revenue could range from $2.4 billion per year if marijuana were taxed like ordinary consumer goods to $6.2 billion if it were more heavily taxed like alcohol or tobacco.
There are even law enforcement officials for the decriminalization of marijuana. The 13,000 member organization Law Enforcement Against Prohibition (LEAP) includes cops, judges, prosecutors and prison wardens who want to legalize all drugs. These are men and women who have been on the front lines of the drug war and know that it’s not working.
However, the FBI’s “Crime in the United States” report concludes that:
- In 2008, 1,702,537 arrests were made for drug law violations
o That is one drug arrest every 18 seconds
o That is 12.2 percent of the total number of all arrests
- 82.3 percent of all drug arrests in 2008 were for possession only
- 44.3 percent of drug arrests were for possession of marijuana
The case of California
According to Time magazine, “Pot is, after all, California’s biggest cash crop, responsible for $14 billion a year in sales, dwarfing the state’s second largest agricultural commodity — milk and cream — which brings in $7.3 billion a year, according to the most recent USDA statistics. The state’s tax collectors estimate the bill would bring in about $1.3 billion a year in much needed revenue, offsetting some of the billions of dollars in service cuts and spending reductions outlined in the recently approved state budget.”
Last February, with the state facing a projected $42 billion deficit, state Assemblyman Tom Ammiano, D-San Francisco, introduced the Marijuana Control, Regulation and Education Act (AB 390) a bill seeking to legalize, regulate and tax marijuana. The bill would prohibit purchase by anyone under the age of 21 (right now it is easier for high school kids to buy pot than alcohol). According to the October, 2009 report by the California State Board of Equalization, using the hypothetical $50 per ounce tax rate, about $990 million could be raised in taxes. They also estimated $392 million in sales tax (state and local levels) bringing the total tax revenue to an estimated $1.4 billion from taxing marijuana.
Right now $200 million in medical-marijuana sales are subject to sales tax. Medical marijuana has been legal in California since 1996. Marijuana is a very profitable drug. One plant can produce anywhere from one quarter pound up to two pounds. You can sell a pound of pot to a medical dispensary for up to $2000; while the street value of a pound of really good pot can net approximately $6000.
In addition to raising tax money decriminalizing pot would free up police to focus on other crimes and save the taxpayers $1 billion annually by not having to pay for nonviolent offenders in prison. At the end of 2007, 809 people were in California prisons for marijuana-related offenses. Not including inmates in county jails, California spent an estimated $39 million in 2007 to keep marijuana offenders locked up. That’s $49,000 a year, per inmate.
Downside to the dons of dank
The Emerald Triangle is composed of the Northern California counties of Mendocino, Humboldt, and Trinity. These counties produce the most marijuana in California, actually, in the entire United States. Right now, in Mendocino County, marijuana accounts for close to 2/3 of the local economy and has filled the gap from the troubled lumber and fishing industries. If all of the pot in Mendocino was eradicated, the county would become destitute.
So what will happen if marijuana is legalized and big, industrial, commercial growers begin to produce a lot more pot for less money? In the California State Board of Equalization’s 2009 report they said, “Standard microeconomic analysis indicates that the price of marijuana would decline because its legalization would lead to an increase in the supply of the drug, which in turn would push down its price. We have assumed that the price of marijuana would decline by 50 percent upon legalization.”
The Emerald Triangle might suffer. Or, they may be able to profit off their high-grade boutique pot status and become to pot what Napa is to wine. They could benefit from tourism and new businesses, such as coffee shops and merchandise. According to the Wine Institute, in 2006, the full economic impact of California’s wine industry in California was $51.8 billion (it was $125.3 billion in the U.S.). Retail value of California wine was $16.5 billion; the wine industry created 309,000 full-time jobs and paid $10.1 billion in wages in California; and profited $2 billion in tourism expenditures.
The National Organization of the Reform of Marijuana Laws (NORML) believes that just the spin-off industries of a legal marijuana market could “generate $8 to $13 billion in total economic activity, with 36,000 to 58,000 jobs, and $1.2 to $1.7 billion in legal wages, which would generate additional income and business taxes for the state.”
Proponents stress tax revenue. But will people pay their pot taxes?
California legalization initiative AB 390 proposes a tax of $50 an ounce. It also includes a licensing fee for growers of $5000 a year with a $2500 annual renewal. But what happens if people don’t pay? These people are already operating illegally. There are large operations running under the authorities’ radar. And, pot is relatively easy to grow—once its legal many people may simply decide to grow their own.
If the tax is too high, then some people probably won’t pay it—they will simply continue to buy it the same way they do now—underground. And, people who are currently breaking the law and growing pot may not be inclined to apply for licenses and pay taxes. In order to enforce the growers claiming and paying their taxes, the state may have to require the threat of a prison sentence. There is the possibility that when the law goes into effect people could still be sent to prison, this time for tax evasion.
As California goes…
Whether or not you think pot should be legalized and taxed, it looks like that is the way it’s heading. Anyone who has lived in California knows how easy it is to procure good pot. So why shouldn’t the state make money off of it? No one can deny that California needs help.
Thirteen states have decriminalized medical marijuana. If California sets an example as being the first state to legalize and tax it, maybe the remaining 37 states will take the first step and decriminalize medical marijuana.
What can you do? To start, you can visit the Marijuana Policy Project. The Take Action page has email alerts, letters you can send to your government representatives and much more. If you are a student you can visit Students for Sensible Drug Policy. You can also contact your state representatives and ask where they are in decriminalizing medical marijuana and find what you can do to help.
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