Should Marijuana Be Legalized and Taxed?

June 3, 2005

The idea of ending marijuana prohibition by legalizing and taxing it has long circulated among economists. Harvard economist Jeffrey Miron has now authored a new study estimating the impact of pot legalization on government spending and tax revenues:

[R]eplacing marijuana prohibition with a system of taxation and regulation similar to that used for alcoholic beverages would produce combined savings and tax revenues of between $10 billion and $14 billion per year.

Replacing marijuana prohibition with a system of legal regulation would save approximately $7.7 billion in government expenditures on prohibition enforcement-$2.4 billion at the federal level and $5.3 billion at the state and local levels.

Revenue from taxation of marijuana sales would range from $2.4 billion per year if marijuana were taxed like ordinary consumer goods to $6.2 billion if it were taxed like alcohol or tobacco.

Read the full report here (PDF). Read the list of economists endorsing it here.

One point: should legalized marijuana be taxed at special rates like tobacco and alcohol? A good tax system should be economically neutral and tax all goods equally. Distortionary “sin” taxes often lead to many of the same side effects as legal prohibition such as crime and smuggling—a point often overlooked in the legalized-drug-tax debate.

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