Aveneu Park, Starling, Australia

Since recreational use legal. However, US Attorney

Since the medical legalization of marijuana of California in 1996, through the Compassionate Use Act, multiple states have followed along with making medical marijuana legal, as well, some states making the recreational use legal. However, US Attorney General Jeff Sessions recent statement of the federal government’s prohibition on marijuana overriding that of state’s laws, has created tensions in congress, from the states who have legalized recreational marijuana, as they look to protect their multibillion dollar pot industry (source). Currently, the United States has a reported 55 million users of marijuana, with more than half of Americans admitting to using marijuana at least once in their lives according to an article by the acclaimed Washington Post. The marijuana market continues to grow even though it is still illegal in most of the United States and the multiple debates of the effects marijuana may have on humans. Considering the American economy contains the largest economy in terms of nominal GDP in the world, the potential legalized marijuana market could further increase the American economy, as it has done for numerous states already. So as the debates over the legalization of marijuana continue in the United States government, it will be important to analyze the economic benefits, in order to see if the financial rewards outweigh the health and social concerns that people, such as Jeff Sessions, have with legalizing the use of Marijuana across the United States of America. Prisons and Incarcerations  In 2011, the FBI’s Uniform Crime Reporting data showed that a total of 1.5 million people were arrested due to drugs in 2011. Of those, about 49.5% of those arrests were for marijuana, many of them for possession of small amounts. The federal government spends an estimated $7.7 billion annually on counter-marijuana efforts, comprising the vast majority of its $12 billion spending on total drug enforcement (Shepard and Blackley 404). A federal ban has had little consequence on the survival of the market, with the size of the marijuana market was estimated to exceed $10 billion (Shepard and Blackley 404). The government, however, is not only sacrificing revenues by failing to capture tax dollars for a $10 billion market, but is indeed spending almost an additional $8 billion a year to insure this sacrifice.A 2009 study by the UK Advisory Council on the Misuse of Drugs found alcohol to be “more than twice as harmful as cannabis” to individual users, and “five times as harmful as cannabis” to society (Weissenborn and Nutt 218). If we can assume that the associated costs of these harms are on a similar relative scale, then the question remains as to why the American government is still spending almost $8 billion annually to fight marijuana, while accepting alcohol for over 84 years. If we also consider the tax revenues generated by alcohol sales, federal legalization of marijuana becomes even more economically logical.Alcohol Tax Injunction with a Potential Marijuana Tax The  current alcohol sales tax aims to reduce private demand by affecting a price increase, and ideally the amount generated by the tax perfectly offsets the ignored social costs. The United States generated a total of $7 billion from alcohol tax revenues in 2015 (Tax Policy Center), charging $0.58/gal for beer, $1.07-$3.30/gal for wine, and $13.50/proof-gal for spirits (Tax and Trade Bureau). That is to say, the opportunity cost of a federal ban on alcohol would be at least $7 billion in lost revenues. Now imagine, for a substance five times less harmful to society, with a rapidly growing market, the opportunity cost currently being forfeited by the federal government in choosing to enforce a ban on marijuana. If the United States Government introduced a tax policy, the demand for addictive substances is relatively price-inelastic, the government can go beyond simply offsetting social costs and use the market to generate additional revenues.Research, estimated annual societal costs of alcohol at around $30 billion, whereas marijuana would cost only $0.5 – $1.7 billion (Gravelle and Lowry 5).Potential Tax Policy Using data from Colorado, a state who has legalized the recreational use of marijuana, as a model, the CRS estimates that the federal government could generate $15.9 – $17 billion per year from a marijuana excise tax (Gravelle and Lowry 15). This would mean that marijuana taxes could generate 227% of alcohol tax revenues, and cover marijuana’s consumption costs to society significantly. This revenue would of course be in addition to the $7.7 billion saved from the inherent elimination of the need for marijuana crime enforcement, as mentioned before. In March of 2011, average prices for high-quality marijuana ranged from $259/oz. in Oregon, to $475/oz. in Mississippi (Malivert and Hall 456). The effect of limited legalization—usually the legalization of medical, but not recreational marijuana—is seen when considering the cross-elasticity of demand between the legal and extralegal markets. Essentially, having medical marijuana available legally—and therefore, much more cheaply—will undoubtedly draw some consumers, perhaps those whose primary motivation for consuming marijuana was medical, from the black market to this new legal market. This would shift the demand curve in the black market inward, and result in a lower price for illegal marijuana. This theory was tested and generally verified empirically in the United States (Malivert and Hall 456). This would introducing cheaper, legal medical marijuana, and thereby reducing the price of extralegal marijuana, both markets become more appealing to consumers. The United States current buying prices are $259-475 per ounce, legalized, commercial outdoor production would only cost $45-$250 per pound (Gravelle and Lowry 10). The initial tax rate could “capture the current differential,” enabling further generation of revenue and allowing for the stable growth of the legal marijuana market. All the while, even with these higher-than-offsetting taxes, outside of looking through this economic lense, legal production would almost certainly price criminal suppliers out of the market.


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