Talking Fiscal Impacts of Pot Legalization with MHP et al

January 4th, 2014 at 1:11 pm

What with long lines forming outside newly legalized marijuana retailers in Colorado, I just did a segment on the Melissa Harris-Perry show on MSNBC [link to come] on the some of the economics and fiscal policy aspects of legalized pot.  For those interested, here are a few points which came up in the discussion.

–Economist Jeff Miron has written numerous clear analyses of the fiscal impact (here’s one).  The savings, which he pegs nationally (meaning pot legalization as the law of the land) as amounting to between $10-20 billion annually, stem about equally from two sources: taxing sales and ending the enforcement of prohibition.

–From that amount, however, policy makers must net out the costs of regulating the new industry, which are not likely to be trivial.

–While legalization advocates have noted the fiscal benefits, ending enforcement has been a strong motivator as well.  As Miron stresses, savings derive from less police activity in enforcing pot laws, and less costs to the judicial and incarceration systems (there were 750,000 arrests for pot in 2011).

— MHPs panel focused on an interesting and important dynamic of the enforcement issue: it is not race or income neutral.  While affluent people have of course been busted and prosecuted, the majority of penalties have fallen upon persons of color of limited means.  This gives an element of social justice to legalization that is underappreciated (and well explored in this recent issue of the Nation).

–During a recent trip to Washington State, which also passed a legalization referendum, there was an interesting recognition that in levying taxes on pot sales, policy makers needed to be mindful of the black market, which is not likely to fold up its tent.  While there are many incentives pushing recreational users toward the newly legal retail market, a large cost differential between after-tax costs there and in the black market will push some buyers out of the licit market.  However, historical examples of such transitions in the past, including the repeal of prohibition, suggest that eventually the black market is much diminished.

–There are, of course, costs to both individuals and society generated by the abuse of any drug.  A good question here is whether legalization will increase those costs.  Neuroscientist Carl Hart, a professor at Columbia who was on the MHP panel, strongly argues “no” based on considerable research.  His research suggests that rather than more pot use, legalization will simply lead to more legal pot use and a lot less crime and criminalization, which again, falls disproportionately on low-income minorities.  But there are nuanced arguments suggesting that that the gateway question is a complex one that is largely unsettled.

Update: Bruce Bartlett weighs in on the fiscal issues here.

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2 comments in reply to "Talking Fiscal Impacts of Pot Legalization with MHP et al"

  1. The Fussbudget says:

    But what says the all-important Joint Tax Committee?


  2. Tom in MN says:

    Any discussions should also be put in the context of the costs of alcohol usage. We put up with these costs due to the much larger costs of prohibition of alcohol. And from what I’ve read, the current costs of illegal pot use are less than the current costs of legal alcohol use. And it’s less addictive, etc. We should make good use of the lessons learned in reducing drunk driving, etc, to make sure legalization does not cause similar problems.


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