Arguments against drug legalization are noted and countered. While legal marijuana has been touted as a means to improve the fiscal position of states by reducing enforcement costs and generating additional tax revenues, the reality is much more complex. First, taxes on the use of medical marijuana are inconsistent with tax policies on other drugs used in medical treatment. Eventually one would expect these policies to converge if a consensus emerges on acceptable medical use.
Second, increases in tax revenues from recreational sales are likely to exaggerate the fiscal impact or could be short-lived. Consumers are likely to spend more of their income on marijuana and less on other taxable goods, such as alcohol, See Anderson. In addition, states can use the new source of tax income as a replacement for existing sources of income (or future income increases). See Dadayan for a historical perspective and review of tax policies.
Third, as with many types of “sin taxes,” taxes on products such as alcohol, tobacco and lottery, people in lower income categories are generally more likely to consume these products, resulting in a regressive tax policy. Fourth, reliance on sin taxes for income creates an incentive for legislators to set a tax rate that maximizes income rather than a higher tax rate that would reduce consumption. For example, in the extreme case where the optimal consumption is zero, the optimal tax rate would be excessively high, and consumption (and tax revenues) would be almost zero. The ICF study estimates that there are at least 81,000 additional direct, indirect and induced jobs in California as a result of the legalization of marijuana sales.
Overall, legal marijuana could mean a big boost to state economies and a lot of money for both state and federal governments. Taking a sheet from the Colorado or Washington book, four states in New Jersey, South Dakota, Montana and Arizona approved measures to legalize the use of marijuana for recreational purposes. Legal changes have generated a flourishing industry of legal cannabis companies, including those that aim to research and develop medical products based on cannabis, those working to distribute and grow marijuana, and many others. In total, more and more states are taking steps to legalize marijuana (whether for medical or recreational use, or both).
Legal marijuana presents the potential for enormous benefits for economies on a local and national scale. It is still too early to assess the economic effect that legalized marijuana will have on the coffers of the two states that have voted to allow it, but the future looks promising. The economic benefits of legalizing marijuana were already evident when the first states changed their legal positions. As marijuana becomes legal in more and more parts of the country, the price is likely to fall overall as a result of commodification.
All of these reasons combine to lower the likelihood that marijuana will become legal nationwide at any time. Proponents of legalization admit that consumption would likely increase, but counteract that it is not axiomatic that the increase is very large or that it lasts a long time, especially if legalization were combined with appropriate public education programs.