Muniland’s marijuana math

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:

States are our biggest spenders

Spending by states, at $1.7 trillion, is about 10 percent of the national GDP. State spending supports education, medical care for low income citizens, assistance to local governments and many other services. State governments are hives of economic activity. Like corporate entities, they must balance their books at the end of every year.

Tax revenues are erratic, so state budget processes must be flexible enough to make mid-year adjustments. Municipal Finance Today reported on good budget news in the recently released National Association of State Budget Officers (NASBO) report:

NASBO in its report said that after several years of recovery, they are seeing noticeable improvements in the state budget environment. Both budget cuts and gaps have decreased, states have enacted net tax cuts in two of the last three fiscal years and revenue collections have outpaced projections.

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