THE ECONOMICS OF LEGALIZING MARIJUANA (OUTLINE)

THE ECONOMICS OF LEGALIZING MARIJUANA (OUTLINE)
Carolyn Nguyen
Excelsior College
Srinidhi Anantharamiah
08/04/2013
Introduction
As Jeffrey Miron highlights in his study, (2005), Nobel laureates George Akerlof, Milton Friedman, and Vernon Smith have offered valid reasons for their support for the legalization of marijuana. The top scholars from prestigious institutions with professional career that has spanned several years have argued that just like tobacco and alcohol, marijuana can make a proper deal of financial implication if legalized. This is because it shall produce a significant amount of revenue through taxation to the day to day management of individual jurisdictions around the developed world (Caulkins & Bond, 2012). This means that the federal governments in the US for example site to save on costs significantly thanks to the potentially new revenue stream that the legalization of the drug holds.
The debate over the legalization of marijuana has intensified in America over the past three decades. The heated debate revolves around the possible results that would arise from the legalization process. A number of states have, consequently, altered their existing laws in order to reduce the penalties for possessing marijuana. Nevertheless, the most compelling argument for the legalization of marijuana is the effect it would make on the economy and government funds.
However, to legalize marijuana it would be beneficial to put its impact on users into consideration. The point in question is whether marijuana leads to addiction or not. This is an issue that draws mixed reactions. According to Garlinger (2004), most marijuana users, including heavy users, experience no withdrawal symptoms when they leave the drug. This may indicate that marijuana is not a drug that leads to addiction. For this reason, it would be prudent to legalize the drug and reap the financial benefits without worrying about its effects on users.
Literature Review
In this section, we shall examine relevant content to the legalization of marijuana and the economic potential that it holds. We shall discuss the various strong points that seem to prove the case for marijuana legalization with respect to the advantages or benefits they stand to introduce to the economy. They include:
Reduction of State Expenditure: What the legalization of marijuana means is that the state may no longer need to allocate or allot funds in the fight against the peddling and consumption of marijuana among residents of any particular jurisdiction (Werb et al., 2012). The amount of money that is spent on making arrests, prosecuting criminals and incarcerating the culprits is considerably significant and this could be channeled toward the development of other key areas of government.
Gettman (2007) reported an estimate of the federal criminal justice expenditures for enforcing marijuana to be $16.4 billion per year. He reached this group by using simple percentage based calculations. Gettman received numbers from estimations from an Office of National Drug Control Policy (ONDCP) review that found Criminal Justice Systems and other Public Costs to be about $36.4 billion, including $13.2 billion for state and local corrections facilities, $9.8 billion for law enforcement expenses, and $6.2 billion for federal supply reduction activities. Marijuana arrests accounted for 45% of all drug arrests annually. Consequently Gettman concluded that $16.4 billion in law enforcement costs were spent on marijuana related cases.
A report by the Sentencing Project calculated the estimated federal criminal justice expenditures for enforcing marijuana laws by using a proportionate cost approach. This report totaled all of the criminal justice costs and associated them proportionately with marijuana related events or persons to estimate the amount of marijuana related expenditures and analyzed them by state. The report concluded that eight states spend more than $1 billion taxpayer`s dollars enforcing marijuana laws.
New York spends around $3 billion, Texas $2 billion, California and Florida $1.9 billion; and Michigan, New Jersey, Ohio, Pennsylvania $1 billion. New York and Texas lead the nation in marijuana arrests with more than 57,000 in each state. However, both of these states are towards the lower end of per capita arrests.
Increase in State Revenue: By installing appropriate checks and balances for the legalization of marijuana, the relevant authorities shall be able to produce a substantial amount of revenue from taxation of the proceeds and operations that make up to the sale and consumption of marijuana. For example, it is estimated that while the legalization shall save the U.S. about $40b that would have otherwise gone to enforcing an unenforceable plan, the strategy would help see the government raise revenue that would trickle back to local governments, state government and federal government in excess of $ 8.7b (Miron, 2003).
Legalizing instead of decriminalizing marijuana is the more effective method to make government revenue by taxation (Reuterman, 2010). There are several different ways to achieve a tax on marijuana. In order to achieve the greatest public benefit and government revenue, we need to decide which taxation system would be most effective. One method would be to tax cultivators. This would be a exceedingly difficult task since small-scale home cultivators can easily grow marijuana.
Effective enforcement would be nearly impossible. Another idea is to guide consumers directly by requiring licensing for all who want to buy, consume, or grow marijuana. By charging fees for these licenses, government could generate revenue. These user fees can be expensive to handle since they must be distributed to a remarkably broad community. This would also still need complex enforcement efforts to the unlicensed as sharing from those with licenses would be exceptionally easy. The perfect tax would be conveniently assessed on licensed manufacturers and wholesalers, similar to the federal tax on cigarettes. This kind of tax would be easily enforced since there are a relatively small number of distributors.
Social costs: However, legalizing marijuana would also have negative implications. This would be in terms of social costs. The first main hidden cost from a physiological standpoint would be respiratory damage due to smoking. A recent epidemiological study by the Kaiser Permanente Center for Health Research found that daily marijuana smokers had a 19% higher rate of respiratory complaints than those who do not inhale the drug. While these reparatory problems have the potential to obtain group insurance rates, this would still be primarily an internal cost.
Legalizing marijuana would reduce the cost of respiratory impairment from marijuana...