Would Legalizing Marijuana Create a Tax Bonanza?

Reason‘s Jacob Sullum runs the numbers and finds that legalizing marijuana would yield very little tax revenue because “almost all” of the profit that makes marijuana the nation’s biggest cash crop “can be attributed to the ‘risk premium’ associated with prohibition.”

UPDATE: This isn’t to say that legalization would be bad policy, just that one of the arguments often advanced for it doesn’t pan out. Even on the economic front, DC Loser observes in the comments that, “The savings from the law enforcement and prison costs could be substantial.” Sullum touches on this point later in his piece:

From the government’s (and taxpayer’s) point of view, the real fiscal benefit from abandoning the war on marijuana would come from no longer arresting, prosecuting, and jailing pot smokers, sellers, and growers. Drug law enforcement costs something like $40 billion a year, and marijuana accounted for 43 percent of drug arrests in 2005. That doesn’t mean legalizing marijuana would save two-fifths of the money spent on the drug war, since marijuana offenders are much less likely to be imprisoned than other kinds of drug offenders. But the savings certainly would be substantial. And that’s not counting all the indirect costs, such as marijuana offenders’ legal expenses, loss of freedom, forgone income, and so on.

Quite right.

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James Joyner
About James Joyner
James Joyner is Professor of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. DC Loser says:

    The savings from the law enforcement and prison costs could be substantial. Legalization will take most of the profit away from the dealers, which is a good thing.

  2. LJD says:

    Liberals want to provide everything FOR the citizens. Conservatives want to protect them from everything, including themselves.

    Regardless of your views on drugs, or any substances like tobacco or alcohol, prohibition doesn’t work. We tried it with alcohol, it failed. The War on drugs is a joke that is breaking budgets, breaking up families, and allowing violent criminals to remain on the streets.

    At some point you have to ask yourself if you would rather have your neighbor smoking a joint in his living room, or abducting children.

  3. JimT says:

    Although it may not help to numbers, I would suggest that it be more correct to compare to taxes, etc. from alcohol rather than comparing to tobacco.

  4. DC Loser says:

    Amazing. LJD and I agreeing on something 🙂

  5. anselm says:

    Set everything else aside and look at foregone spending by current pot consumers, and you’re talking about easily over $50B/yr in funds that are invested, spent on retail, saved, rather than dropped into the mega-albatross of the black market.

    That is a huge positive shock to the system, and IMO should be up there with the savings from the foregone WOD.

  6. Fersboo says:

    Wonderful, to achieve a lower overall tax burden by legalizing pot and taxing it, I just have to accept that the teachers will be getting stoned in the lounge between classes. The fire station’s on-duty staff relax with a dobie while grilling a steak 10 minutes before an alarm comes in. A lonely highway trooper on an isolated road fires up some skunk-weed and gets plowed right before engaging in a high-speed pursuit with a bunch of rowdy teenagers.

    Would we ease some of the restrictions placed on smokers with the legalization of pot? Or would we be concerned with contact highs & second hand smoke? Maybe unions can work in a clause forbidding management from firing pot-addled workers that don’t produce.

    We could have a new excuse in court, “I sorry judge, but I was stoned out of my gourd, man this ganja was the shit, and I didn’t know what I was doing”. Can you imagine how business negotiations will be with stoned Americans on one side and stodgy Japanese on the other?

    Me, me, me. What feels good to me is the only thing important. If I feel like getting stoned and ignoring my responsibilities, so what.

  7. anselm says:

    Fersboo: That was a parody, right?

  8. Fersboo says:


    No, there is no intent for parody on my part. 25 years ago maybe, when I was 13, but not today.

  9. anselm says:

    For the purpose of the excise-tax issue, there is a signficant difference between pot and tobacco. Tobacco is pretty much a two-tiered market with your marlboros and your GPC sharing (my guess) 85-90% of the market. Pot is more like wine, in that quality varies greatly, and consumers will pay for high grade, distinctive varieties. This high-grade will not be $0.50/joint, and in fact most people will probably pay more because $5/joint is well worth the extra quality in the estimation of many aficionados. This will be a many-tiered marekt, with small producers, and society enjoying a meaningful uptick in wealth from both the infusion of commerce and the lfiting of costs.

  10. LJD says:

    Scary. Make sure you enjoy your valium martini cocktail before heading off to fight that fire, or engaging in that high speed pursuit.

    If people would suddenly lose their sense of responsibility and endanger themselves and others as result of legalization, why wouldn’t they do it already? Pot is currently available to any and all that want it.

  11. anselm says:

    Fersboo: then, for starters, explain how your projected social problems are unique to pot, and not, say alcohol.

    On duty firemen and international execs at the negotiating table will be stoned? If that is a danger (and I say it’s not, particularly), then it won’t be because of the sudden absence of a criminal law.

  12. anselm says:

    Also, Fersboo, intoxication is already a defense to a criminal charge, be it cocaine, pot, percoset or alcohol. With the exception of DWI etc. so what would change?

  13. Mark says:

    Added bonus: trial lawyers could file more lawsuits against the “Big Pot” companies whose product ruined the lives of countless Americans who smoked it too much…

    Yes, that is a joke.

    Or is it????

  14. superdestroyer says:

    If people would grow the stuff under threat of criminal prosecution then people will still sell it on the black market to avoid paying high taxes. People are massively overestimating the tax benefit.

    The libertarian solution would be to legalize it but then all government funded or insurance funded drug treatment programs. If people want to use it fine but just do not ask others to pay to cleanup the mess.

    Also, it will still be illegal to sell to minors so there will still be an illegal market.

  15. MikeT says:


    Don’t be an idiot. Yes, you’d have to be an idiot to think that first responders or anyone in a similar critical position would be allowed to do that stuff. Most employers would no more tolerate pot use on the job than they do alcohol. If a private business wants to let its employees get stoned, though, who cares? There are some that I know of that allow their employees to drink. Difference is, they’re not in jobs that require sobriety. In fact, some of them, being IT positions, require a certain degree of intoxication to work through at times 🙂

  16. SgtFluffy says:

    Lets look at this realisticly. I am for legalizing Marijuana, but…..When it is legalized, how long will it be before the Democrats want to sue and regulate Big Marijuana?

  17. Fersboo says:

    MikeT, thanks for the personal attack; it really helps your side of the argument.

    anselm, I am not, nor have I ever stated that the legalization of pot is unique to alcohol. However, the social norms for alcohol have been set (for over 5,000 years now). There are cultural differences of course for acceptable alcohol use (my time in Germany was enlightening to the different social norms).

    LJD, yes the ability to drink on the job or worse, imbibe illicit drugs on the job is already there. I cannot offer a rebuttal except to say that it is a slippery slope towards the picture I laid out earlier.

    States have set limits on alcohol usage, the BAC. Is there an equivalent for pot?

    Superdestroyer, I believe you meant that if government legalized drugs, that the government shouldn’t fund treatments or provided any support for the aftermath of drug use. If this is what you meant, I agree 100%. Better yet, any crime committed under the influence would receive a greater penalty, ala hate crime legislation.

  18. Wog says:

    Being in the City of Toronto where generations of gangs and their offspring grow up and, in fact, gang leaders from all over the world come to retire and put down roots, I often wonder about illegal drugs.

    I was thinking of starting a blog called ‘Meth Cook On line.’ although not a pharmacist, it could serve to inform about drugs.

    Crystal meth was on the radio today and I found out that they use pseudo/sudafedrin to make it and that is what gives ‘crank’ the 12 hour $5.00 high. Additives are Drano, acetone and alcohol.

    What is really needed is a ‘remake’ of the drug. For example, the fact that sudafed can be bought from the store, is manufactured in a factory by professionals, and provides that nice, long high(for only five bucks!)should be emphasised. The additives should be a place to explore, learn, and vary the product. ‘Pass on the acetone and Drano. It gives the drug a bad reputation. Alcohol, on the other hand, is something that will sell better and other types of additives like this should be pursued.

    In the selling of the drug, it should be emphasized that it’s alot like LSD we used in the old days(see we’re all okay). It’s a ‘wonderland of dreams’ with ‘neat colors and patterns.’

    Following up on the ‘addiction’ should be done in the form of friendly advice. It should be explained that, although it’s not really discussed much, if the user mentions the drug to a medical professional this may be used as an excuse for explaining psychosis and schizophrenia-hearing voices and seeing things. We all know it’s really Lucifer being nice to ya’ because your a real explorer and gregarious, not the drug.

    Poisoning of the drug should not really be mentioned because it will ruin sales either way. The trust should be there so the above is actually easy for the dealer. If it’s not, your probably not going to make that much money. The real answer here is that it’s just an excuse for the government – all the voices they hear and things they see, so why rock DAT boat?

    Anyway, there is http://www.streetdrugs.org

  19. superdestroyer says:


    I agree with your policy ideas. If people want to legalize pot they, the user, should feel the full impact from its use. Thus users should not be able to sue the manufacturers or retailers, they should recieve no government or insurance funded medical care on the adverse impacts, there should be no government or insurance funded rehab, and strict liability should apply for all actions that occur from its use. I would also support this for tobacco and alcohol.

  20. LJD says:

    I would also support this for tobacco and alcohol.

    What about food? Career choice? Heredity?

  21. TJIT says:


    I modified your post a little bit. It helps put your concerns into perspective.

    Wonderful, to achieve a lower overall tax burden by legalizing beer and taxing it, I just have to accept that the teachers will be drinking beer in the lounge between classes. The fire station’s on-duty staff relax with a beer while grilling a steak 10 minutes before an alarm comes in. A lonely highway trooper on an isolated road drinks some beer and gets drunk right before engaging in a high-speed pursuit with a bunch of rowdy teenagers.

    We could have a new excuse in court, “I sorry judge, but I was drunk out of my gourd, man this beer was the best, and I didn’t know what I was doing”. Can you imagine how business negotiations will be with drunk Americans on one side and stodgy Japanese on the other?

    Me, me, me. What feels good to me is the only thing important. If I feel like getting drunk and ignoring my responsibilities, so what.

    Fersboo, what really matters is the impairment, not the intoxicant.

  22. Christopher says:

    Park outside of any liqueur store for 15 minutes and see the type of people that frequent it. Yea some are good people, but most are scum that drink way too much. Now picture pot legalized and all those same and MORE people smoking it and driving. I accept alcohol as a legalized substance, but pot? C’mon.

    Bad idea. Baaaaad idea.

  23. Fersboo says:

    Fersboo, what really matters is the impairment, not the intoxicant.

    TJIT, I’ll ask the question again, is their an equivalent between the BAC(alcohol) for pot? And if there is, I want government funded tests 3 times a day at schools.

  24. LJD says:

    And if there is, I want government funded tests 3 times a day at schools.

    Wow. Just, wow.

  25. anselm says:

    Wow is right. Just to drag out the issue a little bit further, Fersboo, I assume you want BAC testing 3x a day at schools?

    I’d be interested to know what formative experience with intoxicating substances brought you to your astonishing position.

  26. DC Loser says:

    Most of the people going into the state owned ABC stores in my Fairfax, VA neighborhoods are white yuppies making 6 figures. But they must be scum if they drink.

  27. Fersboo says:

    It has been quite a long time, but I seem to recall that there are not quite as many visual/aural indicators that an individual is ‘intoxicated’ on pot as opposed to alcohol. I currently don’t let drunkards or those I suspect to leading a life filled with illicit drug-use around my daughter, and I sure as hell don’t want to worry about it in my daughter’s school. If alcohol use was rampant I’d want breathalyzer tests 3x a day also.

    But I have an option, I plan to shell out the $8k+ a year for my child’s entire education(yeah, I know, it will climb exponentially). It won’t be a parochial or evangelical school per se, but at least their values system is closer to my own.

  28. anselm says:

    I think you’re extreme, but your position soudns a little less nutty upon explanation. Given that kids should not be high in school (or out of it), consider why their intoxication is not obvious. Absent drug testing, a person can use pot moderately undetected, indefinitely. Why do you think this is? Their perspective has a sprinkling of fairy dust, but they walk, talk and act normal, and certainly not reckless, obnoxious and dangerous like a drunk.

    For those same reasons, merely sharing the halls with the stoners in the social woodwork is not going to harm your daughter. I understand your objections to the effect of drug use on the social/educational/moral environment of the school, even if I don’t share most of it. However, those concerns alone do not warrant suspicionless drug testing. But as a society we have to find consensus on the appropriate uses and limits on drug testing (and consequences of getting caught). It can be a tool for good OR evil. And I am not ruling school out of bounds by any means.

  29. Dave says:

    If yall catch wind of legalization..let me know so that I can buy stock in munchy companies…K?

  30. just me says:

    In Fersboo’s defense with regards to school.

    I went to school with some druggies. Their pot use was never detected, but they smoked a joint every day during lunch.

    I recall one student coming to school intoxicated, he was cauth immediately, because of the odor, and a couple of dances where people were caught with alcohol or under the influence-same reason.

    Pot use is easier to disguise, and while I am not so convinced the teachers will be toking up during the day, I worry about the people driving the buses-who are in general alone in a bus except for the kids for the majority of the day.

    I sort of sit somewhere on the fence with this issue-I think part of it is that while it would certainly reduce money spent on the war on drugs, I am not so convinced you won’t see a black market (teens or people seeking to get around the taxes), also pot is pretty easy to grow and produce for personal use, while ciggarrette’s aren’t as easy-I don’t know it is an apt expectation.

    Also, you factor in addiction and under the influence issues, and you may end up with problems on the other end.

    I could go for legalization under some circumstances-

    1. There is some kind of reliable quick test to test for those under the influence.

    2. Those who become addicted don’t get to apply for and receive disability if the disability is addiction related (and I mean addiction to any substance not just legal pot). If a person chooses to use these substances, they should fully assume all responsibility related to using them.

    3. Employers in sensitive areas-being in charge of children/impaired people, operating machinery, directing air traffic etc-or private employers in general should be able to blanket fire anyone caught using the substance. There shouldn’t be a “but it is legal” excuse. There are just some jobs where I don’t think drug use is ideal, and if a person isn’t willing to forego the pot to work in that job, then they need to find a job where it doesn’t matter.

    That said, I think decriminalization is what appeals to me on a lot of levels-sure there isn’t a massive tax break, but possession for personal use shouldn’t result in a criminal record either.

  31. djneylon says:

    The problems with legalizing drugs are many. First: where do you draw the line; Marijuana? LSD? Heroin? Crack? Meth? Speed?
    Second: will all the current dopers who spend their days trying to beg, borrow or steal the money for drugs suddenly become productive members of society?
    Third: will all the people producing, transporting and selling drugs become legitimate business people, paying taxes, providing employment benefits, pension plans, etc.?
    Give me an honest answer to these questions, and maybe it would be possible to seriously consider legalization.

  32. James Joyner says:


    But none of those people are currently productive members of society even though drugs are illegal. Why should the standard be that all of them have to suddenly get better? If any of them become productive, it’s a gain.

  33. CAVLRRP says: