Tags: marijuana | tax | revenue | windfall

Forbes: Legal Marijuana Not a Government Bonanza

By John Morgan   |   Friday, 07 Dec 2012 10:42 AM

Tax revenue from legal marijuana sales is not going to be a cure-all for government budget shortfalls, as law enforcement costs will go down but health costs could rise as a result.

The revenue impact for states such as Washington and Colorado, where recreational weed has become legal, is likely to be minimal, according to an analysis by Forbes.

Forbes cited separate 2010 studies by the CATO Institute and the RAND Corporation to reach its conclusions.

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CATO estimated that legalizing and taxing marijuana would hike state tax revenue by about $9 billion annually. Overall, legal marijuana would reduce spending and raise revenues by only 0.5 percent, CATO concluded.

The RAND study estimated California alone would generate about $1.4 billion from a weed tax of $50 per ounce, which is roughly equal to the per-ounce tax on cigarettes.

The topic of marijuana legalization gives a “whole new meaning to the phrase ‘Tea Party’,” according to Forbes. There are other aspects of the subject to consider.

It is “reasonable to expect” legalization will increase demand, Forbes said. But on the other hand, Americans might reduce their intake of alcohol, and therefore alcohol tax revenue would decline.

CATO estimated the price of marijuana could fall by as much as 50 percent with legalization, and RAND concluded it could drop even more.

Even if state and local government expenditures decline from lowered enforcement costs, the impact could be offset by higher medical and regulatory costs, Forbes said.

“Legalizing dope and making it widely available certainly won’t prevent us from going over the fiscal cliff,” Forbes said. “On the other hand, maybe we won’t care as much.”

Washington state and Colorado might be on a collision course with the U.S. government, which continues to maintain marijuana is an illegal narcotic under federal law.

Colorado Attorney General John Suthers criticized marijuana legalization supporters for their claims the measure will raise up to $40 million annually for schools, Reuters reported. In fact, he said Colorado law prevents the state raising taxes without a vote of the people.

Suthers said the Colorado legislature must first approve a tax of up to 15 percent on marijuana sales and then put that approval before the voters.

In Washington state, 15 percent of tax revenue generated by marijuana is earmarked for substance-abuse treatment. The Seattle Times cited state estimates the tax will produce a windfall there of half a billion dollars by 2015.

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