As presently constituted, the American Tax code is as antiquated as any in the world. With thousands of socio-political actors calling for its overhaul over the past quarter-century and the economy inching towards yet another term of quantitative easing, Americans would be wise to consider the estimated minimum of $45 Billion in taxable revenue that their government forfeits every year due to federal prohibitions against marijuana growth and consumption. Indeed, some estimates place the dollar value of foregone taxable revenue at closer to $110 Billion. With the national deficit continuing to rise and the dollar at as much risk as ever of losing its status as the world reserve currency, the revenue derived from marijuana taxation would do a great deal to reassure our creditors and multinational investors.
One of the overwhelming reasons for consideration of taxable marijuana is that we presently expend millions and billions of dollars each year in an effort to stem the tide of marijuana consumption. The now-infamous “war on drugs” has been revealed as a lost cause, primarily due to reasons described by a variety of economists and market analysts. First and foremost, marijuana is extremely difficult to track with any degree of effectiveness in that it is an illicit substance, whose purveyors make every effort to conceal the channels via which they navigate their product into and out of the United States (Stutman & Eastman). According to Harvard economist Jeffrey Miron, estimated savings derived solely from the legalization of marijuana, thus bringing an end to the incredibly unsuccessful effort to curtail its illegal sale and consumption, would amount to approximately $8.7 Billion annually (Miron & Waldock 1). These savings would be a direct result of eliminating government expenditures relating to the enforcement of anti-drug laws, as applied to marijuana. These include the costs entailed in arresting and detaining suspected users, prosecuting and adjudicating their purported crimes and maintaining their quality of life during time spent incarcerated in correctional facilities.
Separate and aside from the sheer economic benefit derived from eliminating the expenditures relating to the enforcement of anti-marijuana laws, tax revenue derived from its legal sale would necessarily be assessed in a manner comparable to that in which we asses tax rates for alcohol and tobacco (Ibid.). Though estimates of marijuana users in America range anywhere from 25 to 60 Million users, it is difficult to precisely estimate how much taxable spending is put towards marijuana each year; as marijuana has long been illegal, no empirically reliable data for a precise assessment exists (Stutman & Easton). Nevertheless, it would be safe to assume that the tax revenue derived from the sale of legal marijuana would be considerable in light of Canadian data, which suggests that while it costs approximately 33 cents to produce a single gram of marijuana, the average American pays $10 for it. In other words, Americans are paying ten times more for their marijuana than what it costs those from whom they purchase it to produce it (Ibid.). If accurate, this reality is disturbing, though only insofar as it makes clear that the U.S. Government is failing to take advantage of an extraordinary opportunity to offset its losses through regulating and taxing marijuana.
Accordingly, if the Canadian estimates hold true, the cost of retailing and distributing marijuana is equivalent to that entailed in doing the same for tobacco cigarettes: just 10 cents per unit. Once regulated and sold, marijuana could thus yield anywhere between $40 and $100 Billion in tax revenue. In other words, the legalization of marijuana would do nothing more than transfer into the federal system and regulated marketplace the same revenue potential that has been forfeited to black-market operators. However, the simplicity of this scheme does not necessarily meet with the approval of certain Americans. For example, Michael Cooper of the New York Times has advocated in favor of simply raising taxes on legalized marijuana dispensaries of the kind found in Colorado and California (Cooper). According to Cooper, Oakland, California derived $1.4 Million in tax revenue this past fiscal year from medical marijuana dispensaries, accounting for nearly 3% of all business taxes collected by the municipality. Looking to Colorado as an example of a state in which taxing medical dispensaries has yielded tremendous results with regard to tax revenue, Oakland is now seeking to expand the number of dispensaries located within its confines. For Colorado, which derived $5 Million last year through taxing marijuana dispensaries, this revenue has doubled each year since the state began the practice of taxing dispensaries (Ibid.). However, significant obstacles are presented by this scheme.
Simply increasing the number of medical marijuana dispensaries in a given locale will not necessarily generate any increase in tax revenue, as adding dispensaries is not tantamount to adding citizens in need of such dispensaries. Unless there exists some need for additional marijuana dispensaries in Oakland, new dispensaries will be short-lived endeavors, as opposed to long-term sources of tax revenue. Moreover, such a scheme does little to shift revenue from organized crime into the national economy (Eastman & Stutman). In this sense, the Oakland scheme not only ignores the full extent of economic benefits derived from marijuana regulation, but also ignores the socio-political advantages entailed in effectively depriving criminal organizations of much-needed financial resources, but without incurring additional law enforcement-related costs towards this end. Within the context of eliminating crime without having to spend a single dollar, marijuana regulation and legalization presents a means of ensuring the American Economy’s future, in more ways than one.
Marijuana dispensaries do, however, present a roadmap or illustration of just how beneficial a regulatory framework for marijuana sale might be. Not only would marijuana itself be regulated, sold and taxed, as applied to the consumer, but those selling the product in the private sector would also be subject to standard income tax (Miron & Waldock 10). And yet, there are those who believe that the long-term benefits of marijuana-related tax revenue are far outstripped by marijuana legalization’s potential impact on the quality of our citizens going forward. Conservative activists such as David Frum have argued that the majority of those who use marijuana tend to be the kinds of citizens who make unhealthy choices. Chief among these citizens are children, whose brains have yet to fully develop (Frum 2). Frum believes that children should not be provided with greater access to marijuana, which would inevitably result from its legalization. For Frum, greater access of this kind risks debilitating the long-term cognitive capacity of our nation’s youth, thereby rendering marijuana legalization an unnecessary evil. This position has been countered by members of the medical community, as per below, in a way that allows for compromise with the socially conservative community.
Psychiatrist David Nathan, in responding to Frum, agrees that young people are at greater risk than others with regard to marijuana use. Furthermore, Nathan and Frum agree that the hostile criminalization of marijuana is unlikely to yield significant benefits. In fact, Nathan argues that the criminalization of marijuana use, when far more harmful substances such as alcohol are readily available, serves only to appropriate marijuana as an attractive commodity to those without the means of conveniently acquiring it (Nathan 2). This “forbidden fruit” argument is all the more buttressed by the fact that alcohol, for example, is far more harmful to the short and long-term development of the human brain’s cognitive functioning. As such, failure to legalize marijuana will result in further exposing the brains of American adolescents to substances that are more readily available to them; substances with far greater potential to harm the development of their cognitive functioning:
“Alcohol, tobacco, marijuana, caffeine and refined sugar are among the most commonly used, potentially habit-forming recreational substances. All are best left out of our daily diets. Only marijuana is illegal, though alcohol and tobacco are clearly more harmful. In several respects, even sugar poses more of a threat to our nation's health than pot” (Nathan 2).
Given Nathan’s assessment, a failure to legalize marijuana is criminal in and of itself in that it can only further young Americans’ obsession with more accessible habit-forming substances, which have been proven destructive to their long-term development as productive citizens; citizens capable of generating taxable revenue through their purchase of regulated marijuana, so long as they remain able to consume it.
To this end, Nathan raises concern at the intersection of the conservative position and that of those who argue in favor of regulating marijuana as a means of restricting the mobility of organized criminals. With the prohibition against marijuana has come a drastic increase in the development of synthetic substitutes for it, which are widely used by American children (Nathan 3). These synthetic marijuana substitutes pose an immediate and potentially fatal risk to American children; a risk that exists strictly on account of marijuana being left to the regulatory devices of organized criminals and black-marker operators. Within this context, a climate of unregulated marijuana is one that guarantees the demise of our national future. And yet, Tony Nitti points to a largely unrecognized difficulty that would eventually undercut the taxable capacity of marijuana.
Nitti argues that genuine and efficient regulation, distribution and taxing of marijuana would eventually result in less revenue than anticipated, in addition to a black-market just as active as it was prior to regulation (Nitti). In so arguing, Nitti evaluates Colorado’s plan for the spending of marijuana-related tax revenue: “In order to generate the $40 million necessary to fund school construction, the production price-per-pound would have to increase to $1,100” (Ibid.). Accordingly, argues Nitti, marijuana users would cease to engage with the regulated marijuana market and would instead seek to purchase marijuana at far less expensive rates being offered by black-market operators. Needless to say, if marijuana consumers largely abstain from a regulated marijuana market, the benefits of taxed marijuana would be all but eradicated.
Ultimately, marijuana use in the United States has been prevalent for the past half-century and there is no reason to believe that this trend will discontinue as we enter the 21st Century. A federally-regulated system for marijuana distribution would undoubtedly yield taxable revenue of the kind needed to account for troubled economic times. However, it would also run the risk of exposing a greater number of American children to the developmental ills of marijuana use, while also creating cost-prohibitions for the marijuana consumers who would be relied upon to purchase the taxable commodity in this instance. Nevertheless, relative to the unimpressive tax revenue derived from simple increases in the number of taxed medical marijuana dispensaries, legalization of marijuana, and its ensuing regulation and distribution, presents too great a potential for economic transformation to be ignored as a viable option for increasing the nation’s tax revenue, and thus easing the fiscal burdens created by our national debt, which now threaten to unseat the American Dollar as the world reserve currency.
Cooper, Michael. "Struggling Cities Turn to a Crop for Cash." New York Times. N.p., n.d. Web. 11 Feb. 2012. <http://www.nytimes.com/2012/02/12/us/cities-turn-to-a-crop-for-cash medical-marijuana.html?_r=0>.
Easton, Stephen and Bob Stutman "Legalize Marijuana for Tax Revenue." Bloomberg BusinessWeek. N.p., n.d. Web. 10 Nov. 2013. <http://www.businessweek.com/debateroom/archives/2010/03/legalize_mariju.html>.
Frum, David. "Marijuana Use is Too Risky a Choice." CNN.com. CNN, 7 Jan. 2013. Web. 7 Jan. 2013.
Miron, Jeffery A. and Waldock, Katherine. “The Budgetary Impact of Ending Drug Prohibition.” (2010). Cato Institute. EBSCO. 10 Nov. 2013
Nathan, D.L. "Why Marijuana Should Be Legal for Adults." CNN.com. CNN, 9 Jan. 2013. Web. 9 Jan. 2013.
Nitti, Tony. “Understanding The Impact Of Legalized Recreational Marijuana On State Tax Revenue.” Forbes.com. Forbes. 24 Sep. 2013. Web. 24 Sep. 2013.