Should Drugs Be Legalized?

Some people have suggested that soft drugs, like marijuana, should be legalized as a source of revenue for the government.  After all, other "sin" taxes have provided a large amount of revenue to the governments of all 50 states.  But let's whether or not this would really be helpful, without discussing the morality of any of these activities.

Alcohol

According to the Tax Policy Center, alcohol generates nearly 6 billion for state governments nationwide.  Even in tea totaling Utah, taxes on alcohol sales generate nearly 40 million dollars of tax revenue annually, a state which has one of the highest alcohol tax rate in the US, with the lowest per capita rate of alcohol consumption.  That dollar amount is nothing to sneeze at.

But the cost to society is much greater that 6 billion dollars.  An economist for Forbes Magazine, Tom Van Ripper, estimates that alcohol costs America 166 billion dollars annually.  That is more than 27 times the amount of money that booze puts in tax coffers.  The total loss is not just to government, but to business as well.  The total costs include lost productivity and wages as well as the costs of alcohol-related health care.  There is also the immeasurable costs of life when a drunken driver takes the life of an innocent person, which can not be calculated as part of the 166 billion.  There are 18 billion dollars spent annually for alcohol abuse treatment which represents about 1.3% of all health care related spending.

Tobacco

According to the Tax Policy Center, Tobacco taxes generate a whopping 17 billion in aggregate tax revenue for all 50 states and the US government as well.  Smoking is an addiction which helps most US states balance their budgets.  In Utah, where the per capita smoking rate is also the lowest, tobacco generates nearly 60 million dollars.  Puffing is the most generous of all of the "sin" taxes.

But tobacco has a costly side as well.  Van Ripper estimates that tobacco costs the US 157 billion dollars, about 3 times as much as it generates in tax revenue.  More than half of that money is in direct health expenses to treat a variety of problems that range from cancer and heart disease to impotence.  The rest is in lost productivity where ill employees miss work.

Overeating

If there is an addiction that makes profit for the US, it has to be food.  People have to eat, so why not profit from it?  According to the Michigan Restaurant Association, the food industry generates 11 billion dollars in tax revenues and employs over 400,000 people.  Very good for the economy.

But there is a downside.  Many people, especially those who eat almost exclusively at restaurants, are obese and their poor health is draining the economy.  Overeating costs the US about 107 billion annually, nearly 10 times the amount collected in restaurant taxes.  Obesity is the cause of about 1 out of every 5 heart attacks and is responsible for a large host of other health problems.

Gambling

According to the American Gambling Association, tax revenues from casinos topped 7 billion in 2010.  In addition, states earned nearly 24 Billion from lotteries, according to the Las Vegas Business Press.

Gambling is the only "sin" tax that comes close to earning back what it costs from society.  Gambling earns back more than 3/4 of the 40 billion dollars it costs the economy.  Gamblers will often chase bad bets by gambling even more money.  Gamblers face job loss, foreclosure and bankruptcy and gamblers are more likely to commit other crimes.

Legalizing drugs?

Notice a pattern?  Sin taxes generate money for the government, but they do not offset the costs to society.  But what about drugs?  Drugs costs society an estimated 110 billion, according to Van Ripper.  The argument is that legalizing drugs could generate some revenues to offset the costs.  You might even say that the costs to society may even decrease if drugs are legalized.  Many people will seek treatment sooner, when it is less costly if the stigma of drugs is removed.  There will be less spent on law enforcement as well.

As far as I know, there is no credible cost/benefit study on what legalized drugs would cost or would benefit society, but it would likely be similar to alcohol.  When Prohibition was repealed, the main benefit to the government was the reduced spending on enforcement.  If drugs are legalized, crime syndicates will have to find another source of revenue and some will go away.    The Cato institute estimates that nearly 45 billion dollars can be saved by government if drugs are legalized.  47 billion dollars can be generated in tax revenues, more than currently comes into state coffers from alcohol and tobacco combined. The total benefit is still less that the cost to society.  However, this is if current prices hold.  If drugs are legalized, there will be more producers and a greater supply and prices will go down significantly.  If recreational drugs are legalized, there will be many enter the market who can produce them more efficiently than the current producers do. Therefore the 47 billion dollars in tax revenue is probably an optimistic estimate.  One will also argue that society pays the cost whether or not drugs are legal, but again, there has been no study to determine if the costs to society will decrease or increase.  But if recreational drugs are legalized, couldn't one also argue that more people will experiment and therefore the costs of addiction and treatment will increase and not decrease.  What will happen to the societal cost is a more difficult question to answer.

What questions are unanswered?  Here are a few.  How many more people will indulge once the stigma of illegal drugs is gone?  Will fewer people seek treatment for their drug addiction if it is legal, or will it be more?  Will there be more or less loss in productivity in the economy if drugs are legalized?  Will legal drugs lead to higher or reduced health care costs?  If costs increase, who will pay for these costs and how will it effect the economy?  Will the legalization of something that is currently illegal really benefit society as a whole?

This blogger is of the opinion that "sin" taxes are a bad idea.  Not that I am for addiction and sin, but it unethical for government to profit from something that we really hope will go away.  It is using people's weaknesses to fund the activities of government.  Is taxing a bad activity is a tacit endorsement by government of a poor and destructive habit?  It seems obvious by these examples that no sin can be taxed at a rate high enough to make up for the costs to society and to the aggregate economy.  Therefore, should drugs be legalized to fund the government...no.


Sources:
Tax policy center on alcohol revenues
Tom Van Ripper's article
Tax Policy Center on tobacco revenues
MRA
AGA
Las Vegas Business Press
Cato institute on legalizing drugs