Opinion

GETTING OUT OF THE RED Legalize it

4309 yostgotr
Last October, The Tech surveyed over 2100 MIT undergraduate and graduate students about their political views. We asked whether students supported California Proposition 19, a measure to legalize and regulate marijuana. A majority — 54 percent — said they supported the measure, compared to only 41 percent of Americans overall. And while 52 percent of Americans said they did not support the measure, only 26 percent of MIT students said the same. A fifth of MIT respondents said they were unsure or offered no response.

For a moment, ignore the question of whether, as a matter of principle, marijuana should be legal or illegal. What would be the net improvement of U.S. public finances if the drug were legalized and taxed?

To determine how much additional revenue would be created by legalization, the first step is to judge how large the U.S. market for marijuana is. These estimates vary widely, but both demand- and supply-side analyses of the U.S. marijuana market put it in the area of roughly $40 billion in transactions per year.

The second step is to estimate how this market would change in response to legalization and taxation. This is a little bit trickier. One could expect that if marijuana were legalized, there would be two effects on supply and demand: first, production costs would fall significantly, increasing supply; and second, by removing the threat of incarceration, consumption of the product would be more attractive, increasing demand. If the experience of the Netherlands is indicative, prices for marijuana would be reduced by half were legalization to occur. From a demand-side perspective, one might expect the quantity consumed to increase as if the price had fallen by another 20 percent.

If these assumptions are correct, and the government ended prohibition and then levied an excise tax on marijuana equal to 60 percent of the end retail value (an exclusive tax rate of 150 percent), then consumption of marijuana would remain unchanged relative to the status quo. Suppliers would sell the drug at half of the pre-legalization price and receive $20 billion, the government would apply taxes and collect $30 billion, and the end price to the consumer would rise, but any loss of demand would be offset by the demand increase from decriminalization. This is a high tax rate, but not so high as to invite a resumption of black market activity — in Europe, many countries tax cigarettes at an exclusive rate of 300 percent, and little black market activity exists.

New revenues are not the only budgetary effect of ending prohibition. In addition, legalization would end significant outlays on law enforcement and incarceration. Jeffrey Miron PhD ’84, an economist at Harvard, has studied the budgetary effects of marijuana prohibition and estimated the federal and state savings from the legalization of marijuana to be $13.7 billion annually. This is consistent with California’s experience with decriminalization — a reform which has reduced its marijuana law enforcement costs by 75 percent.

Assuming a further three percent annual growth rate in tax revenues and enforcement cost-avoidance, the total savings over a 10-year window from legalizing marijuana come to an even $500 billion.

It is tempting to ignore the principle of marijuana legality altogether. After all, the above scenario does not increase total consumption of marijuana from its present state, it merely extracts rents from those involved in the market and returns them to the taxpayer at large. In a sense, it is moot if one sees a legitimate public interest in reducing marijuana use — with high but achievable tax rates, the government could discourage marijuana to the same extent that prohibition does and save itself half a trillion dollars to boot.

And yet, to not bring up the principles behind legalization would be to give the anti-prohibition movement short shrift. It goes against the American character to deny a fellow man his right to the pursuit of happiness. When we do make such laws, we typically do so under one of two circumstances. The first is when one man’s pursuit of happiness conflicts with another’s right to life, liberty, or that same pursuit. No matter how much happiness you might obtain from it, the law cannot accommodate your hobby of stabbing people or burning down others’ houses without trampling the rights of others.

The second is when society does not believe a person has the necessary mental faculties to make an informed, rational choice for themselves. For example, we deny a multitude of rights to minors, many on the grounds that minors have not reached the level of maturity necessary to act in their own self-interest. Due to the addictive nature of cocaine, as well as the considerable risk of harm that it creates, it would be fair to conclude that there is no age at which a human being has matured to use the drug with rational self-interest, and hence a justification exists for its continuing prohibition.

Neither circumstance applies to marijuana. Marijuana consumption does not interfere with the rights of others, nor is it so harmful or addictive a drug that one could rule out individuals using it out of enlightened self-interest. Like hot dog eating or white water rafting, marijuana consumption should be counted among those activities in which society trusts the individual to make a trade-off between the joys of the activity and its physical risks.

In principal and in practice, the prohibition of marijuana is self-destructive. This country would be uniformly better off if marijuana was legalized and taxed.

Action: Legalize marijuana and tax it at an exclusive rate of 150 percent. 10-year savings: $500 billion.

—Keith Yost

4 Comments
1
Mike Parent over 6 years ago

Over this past summer we've seen the confiscation of over 100 tons of marijuana. That's 200000 pounds, 3,200,000 ozs. Now remember, dosage comes in fractions of a gram. YET, marijuana is still readily available. If that isn't proof of and testimony to a failed policy, nothing is. Americans want and consume marijuana at a very high rate as they have for over 40 years and no one is dying from it unless you get shot in bed during a failed raid. e.g. http://www.std.com/obi/Police.Notes/Nashua.NH

Legalize and regulate marijuana.

Dems and Reps, different pages from the same bad book! LEAP.cc

2
Chadwick over 6 years ago

Pretty good article, except for the whole taxation section. If the reasoning behind ending prohibition in order to slap an excessive taxation on the consumption of marijuana, as was proposed in Massachusetts in 2009 by Dick Evans, then legalization will most likely not happen through the ballot box in a liberal state (see California Prop 19, 2010)).

But overtaxation gives more money to the government for them to spend rather than put it in the hands of responsible small-businesses (which, on average, wouldn't be able to succeed financially as a legal business in the event of over-taxation). This makes it much more difficult for (future) cannabusinesses to save and invest in the community or in their customers, while allowing Uncle Sam to spend the money in whatever way the politicians see fit.

There is no justification to impose an excessive tax on responsible cannabis consumers vs. wine/alcohol (wine is generally taxed lower, e.g. CA). Law-enforcement savings plus sales tax and an excise tax of $0.02 cents per gram (using the wine industry as a model) on all retail non-medical transactions will generate enough revenue for the state from cannabis at any pricepoint.

People will be able to spend money at other businesses while stoned, such as restaurants, pizza delivery, bakeries, and other munchie-quenching and swag-totin' shops, and the economy will likely be improved as a result. Overspending is another problem entirely.

3
Brandt Hardin over 6 years ago

Marijuana is the safest drug with actual benefits for the user as opposed to alcohol which is dangerous, causes addiction, birth defects, and affects literally every organ in the body. Groups are organizing all over the country to speak their minds on reforming pot laws. I drew up a very cool poster featuring Uncle Willie Nelson and The Teapot Party for the cause which you can check out on my artists blog at http://dregstudiosart.blogspot.com/2011/01/vote-teapot-2011.html Drop in and let me know what you think!

4
Keith Yost over 6 years ago

To Chadwick:

I'm as anti-tax as the next man, so I'm sympathetic to your view, but I think you under-estimate the persuasiveness of a legalization scheme that does not result in any increase in marijuana consumption. A lot of support for prohibition comes from the simple fact that many people out there want to discourage the use of marijuana. If you offer a legalization scheme that discourages marijuana use just as much as prohibition, it becomes very hard to argue against.