Muniland’s marijuana math

January 31, 2014

Source: ABC 7 News Denver

The sale of marijuana for recreational use was made legal in Colorado starting January 1, and it appears to be a big success. Product and tax revenue numbers are not yet available, but some have predicted that Colorado will bring in an estimated $40 million in tax revenue this year from marijuana sales. USA Today reported anticipated tax revenues of $1.9 billion in five years for Washington State, which legalized recreational use in November:

For consumers, the effective tax rate is 44 percent, according to the Washington Liquor Control Board. The sticker price includes a 25 percent tax on producers and a 25 percent tax on processors plus 25 percent added to the price of the product. Buyers also pay an additional 6.5 percent state sales tax.

The revenue could bring in as much as $1.9 billion in the first five years to go toward a variety of services, including social and health programs, a marijuana use hotline and the Alcohol and Drug Abuse Institute at the University of Washington. The state’s Liquor Control Board will begin issuing permits for marijuana retail locations starting Nov. 18. Under the law, the state can have a maximum of 334 retail locations.

These projected revenues do not reflect new employment that will be created by the growing and selling of pot. Legal pot jobs will be transparent to the government and will generate income and sales taxes. Legalization of marijuana will push jobs out of the underground cash economy and into the mainstream.

Then there are the savings that will come from reduced expenses for law enforcement, courtroom and jail time. CNBC wrote in 2010:

In the 2010 edition of ‘The Budgetary Implications of Drug Prohibition,’ Jeffrey Miron, director of undergraduate studies at Harvard University, estimates that legalizing marijuana would save $13.7 billion per year in government expenditure on enforcement of prohibition.

‘Legalization eliminates arrests for trafficking and possession,’ Miron says. ‘Second, legalization saves judicial and incarceration expenses. Third, legalization allows taxation of drug production and sale.’

Miron estimates that eight states each spend more than $1 billion annually enforcing marijuana laws: New York, $3 billion; Texas, $2 billion; California, Florida, $1.9 billion; Michigan, New Jersey, Ohio, Pennsylvania, $1 billion.

Arizona—another border state—spends $726 million, while Colorado spends $145 million. North Dakota spends the least—$45 million a year—reflecting both its location and population density.

Police are a significant expense for local governments. In 2009, according to the Justice Department, drug-related arrests were 9.8 percent of all arrests in the country broken down like this (page 2):

It seems that the savings on enforcement could be greater than tax revenues, including a cost reduction for police pensions if less police work is needed. Legalizing pot may be one way to help get pension liabilities under control.

My rough math says increased tax revenues from legal pot sales, civilian payroll growth, lower police and pension costs and fewer expenses for judicial processing and incarceration makes legal pot a fiscal winner.

One comment

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A) I think you will find law enforcement is a fixed cost, especially drug related. They will simply find another looming threat. A decade ago meth labs ate the entire budget for salary increases.

B) I suspect you are far too good a reporter to really believe the tax money will go to drug hotlines. There is no way the legislature of Colorado can keep its hands off that money. A veto-proof Dem control will funnel it to K-12, a straight GOP control will drop taxes. By the time next year’s Long-Bill (budget) comes out, it will be distant history.

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