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Legalizing Pot Makes Lots of Cents for Our Cash-Starved Government

Even the most mainstream figures are now taking the idea of legalizing and taxing pot seriously -- budget-crunched governments should listen.
 
 
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What could you do with an extra $14 billion? Members of the National Organization for the Reform of Marijuana Laws (NORML) and other like-minded organizations will be asking government officials that very question on April 15 when they present a mock check to the U.S. Treasury.

"We represent the millions of otherwise law-abiding cannabis consumers who are ready, willing, vocal and able to contribute needed tax revenue to America's struggling economy," says Allen St. Pierre, NORML's executive director. "All we ask in exchange for our $14 billion is that our government respects our decision to use marijuana privately and responsibly."

But it's not just NORML calling on lawmakers to tax and regulate marijuana. In today's economic climate, the question is: Who isn't?

Late last month, during President Barack Obama's first-ever Internet town hall, questions pertaining to whether legalizing marijuana like alcohol could help boost the economy received more votes from the public than did any other topic.

The questions' popularity -- and the president's half-hearted reply ("No," he said and laughed.) -- stimulated a torrent of mainstream media attention. In the past two weeks alone, commentators like David Sirota ( The Nation), Kathleen Parker ( Washington Post), Paul Jacob ( TownHall.com), Clarence Page ( Chicago Tribune) and Jack Cafferty (CNN) have expressed sympathy for regulating pot. Even Joe Klein at Time magazineweighed in on the issue, writing this month that "legalizing marijuana makes sense."

It makes cents, too.

According to a 2005 analysis by Harvard University senior lecturer Jeffrey Miron -- and endorsed by over 500 distinguished economists -- replacing pot prohibition with a system of taxation and regulation similar to that used for alcohol would produce combined savings and tax revenues of between $10 billion and $14 billion per year.

A separate economic analysis conducted by George Mason University professor Jon Gettman in 2007 estimates that the total amount of tax revenue derived from cannabis could be far higher. According to Gettman, the retail value of the total U.S. marijuana market now stands at a whopping $113 billion per year.

Using standard tax percentages obtained from the Office of Management and Budget, he calculates that the diversion of this market from the taxable economy deprives taxpayers of $31.1 billion annually.

For local and state governments, taxing and regulating pot could help reduce growing deficits. For instance, in Oakland, Calif., the City Council gave preliminary approval last week to a proposal to raise the business tax paid by city-licensed medical-marijuana dispensary operators. Councilmembers estimate that the new tax will raise from $400,000 to a "couple million" dollars annually.

Likewise, lawmakers in Massachusetts and California are debating statewide measures to tax and regulate the production and sale of cannabis to adults. Both state proposals would impose a fixed excise tax on the retail production of marijuana -- non-retail cultivation would remain untaxed -- as well as sales taxes on the commercial sale of the drug to anyone 21 years and older.

"The revenue effect of the proposed Act is an estimated annual revenue gain of $1.339 billion," says the California State Board of Equalization and Taxation, which is backing the measure. A more liberal economic assessment performed by California NORML's Dale Gieringer estimates that the annual revenues raised via the advent of a legal cannabis industry in California could be far higher.

"A comparable example would be California's wine industry," Gieringer wrote in a 2009 report. "With $12.3 billion in retail sales, the wine industry generates 309,000 jobs, $10.1 billion in wages and $2 billion in tourist expenditures. Extrapolating these figures to a legal marijuana market … one might expect $12 billion to $18 billion in total economic activity, with 60,000 to 110,000 new jobs created, and $2.5 billion to $3.5 billion in legal wages, which would generate additional income and business taxes for the state."