PROGRAM NOTE: Today is the first day of the News Guy’s new three-times-a-week (at least) schedule. More info about the web site coming later this week.

OK, now let’s get down to business, and what’s more important to business, especially the business of public affairs, than money, especially these days when the public sector doesn’t have enough of it?

Of  late, though, a potential “new” revenue source has entered the discussion. The “new” is in quotes because this potential revenue source isn’t really new (or “new”) at all. It just hasn’t been discussed, being considered largely undiscussible.

Desperation, though, can liberate. In this case, it has liberated respectable and respected public officials, most notably Gov. Arnold Schwarzenegger of California, who is both respectable and a Republican, to discuss right out in plain sight the possibility of legalizing marijuana.

Legalizing and taxing.  California faces a $24 billion budget deficit. According to the legislator who sponsored a bill to legalize pot, taxes on it could raise $1 billion. Schwarzenegger stopped well short of endorsing legalization, but he did said, “it’s time for debate.”

Like the Gubornator, the News Guy is not taking sides in this debate, which is both contentious and tribal – our kind of people against those other kinds of people. But the theory here is that debate is always in order, and that it ought to be conducted as rationally and civilly as possible, accentuating empirically testable evidence and minimizing the tribal and emotional.

In that spirit, let’s examine what would be in it for Vermont were marijuana to become legal and taxable. How much would the state collect in revenue? How much would it save in law enforcement expenses? But also, how much more would it have to spend?

To suggest that this is uncharted territory is an understatement. For instance, nobody really knows what the tax on legalized marijuana ought to be. In economic theory, if it’s set too high pot-puffers would stick to the illegal black market.

In the real world, this would seem unlikely. Whiskey is heavily taxed but home-distilled “white lightning” is almost impossible to find. Still, until there is actual experience with a specific product in a specific market, nobody really knows how consumers will behave.

Furthermore, because marijuana has been illegal, estimates on its actual use and economic impact vary wildly. The Marijuana Policy Project, for instance, puts the total value of marijuana manufactured in Vermont at $29 million. NORML (the National Organization for Reform of the Marijuana Laws) said the total Vermont harvest value could be as high as $118 million.

There could be a certain amount of guessing going on here.

Some guesses, though, seem more reliable than others. A recent report by the  Substance Abuse & Mental Health Services Administration of the U.S. Department of Health and Human Services  said  ”Vermont had the nation’s highest incidence rate of marijuana use among people aged 12 and older.” So both the benefits and the costs of pot legalization would probably be somewhat greater in Vermont than in most other states.

Sober estimates also seem to come from a study by Harvard economist Jeffrey Miron, who favors de-criminalizing drug use, but who, if anything, understates the tax revenue potential of legal pot. Miron’s study assumes that legalization would not increase consumption. But of course it would. Markets work, and making a product legal is like making it less expensive, removing a powerful disincentive to consume.

But let’s be as conservative (non-political definition) as Miron, and suppose Vermonters continue to produce, and therefore to consume (assuming that almost all the pot sold in the state is grown here) “only” $29 million worth of marijuana, that low estimate of the Marijuana Policy Project.

Now back to Miron, who suggests taxing marijuana at 25 percent of its total cost to start with. So Vermont would gain at least $7.25 million a year in new tax revenue?

No. Marijuana costs more precisely because it’s against the law. Making it legal would make it cheaper, perhaps a lot cheaper. Fifteen years ago, an economist estimated that, un-taxed, marijuana would cost only about three bucks for a package of 20 joints. Taxed at 25 percent, Vermonters would have to buy about 9.6 million packs for the state to haul in $7.25 million. That won’t happen.

But under Miron’s plan, the tax would rise gradually until it was half the total pre-tax cost, similar to the tax schemes for alcohol and tobacco.

Besides, additional revenue is only one advantage, and probably the lesser one,  that pot legalization would provide to state governments. The other is that states would stop investigating, arresting, trying, and incarcerating the people who produced, sold, and possessed marijuana. That could save millions.

How many millions is hard to estimate. Miron’s study estimates that legalizing marijuana would save state and local governments $12.9 billion a year, with about 70 percent of that, or some $9 billion, being saved by the states. Pro-rated by population, that could save Vermont almost $20 million a year.

But pro-rating by population might not be valid. Vermont arrests and imprisons users (as opposed to producers and sellers) of marijuana less than many other states do. Actual savings here would probably be less, but still substantial.

Needless to say, there would be costs as well as benefits to legalizing marijuana. Opposing Schwarzenegger’s suggestion in a Los Angeles Times column, Kevin A. Sabet, who worked at the Office of National Drug Control Policy in both the Clinton and Bush administrations, pointed out that the “$8 billion in tax revenue generated from (alcohol consumption) does little to offset the nearly $200 billion in social costs attributed to its use.”

But there is evidence that marijuana is less dangerous and less unhealthy (and therefore less expensive) than alcohol. Years ago, an article in the prestigious British medical journal, The Lancet, concluded that “the smoking of cannabis, even long-term, is not harmful to health. It would be reasonable to judge cannabis as less of a threat than alcohol or tobacco.”

Both alcohol and marijuana alter perception and judgment. But while drinking too much makes many people more aggressive, pot-puffing tends to make them placid (too placid, some critics say). The driver who is one toke over the line should no more be behind the wheel than the driver who is three sheets to the wind. But that first driver probably isn’t going as fast. When not driving, the smoker is less likely than the drinker to get into a fight, hurt someone, or get hurt himself. Health and safety costs for alcohol might not be the right model for estimating the costs of legalizing marijuana.

Whatever those costs are, there is some evidence that Vermonters are willing to consider paying them. A poll taken in January found that a 49-37 percent plurality supported  ”making marijuana legal for adults over 21, and regulating it similarly to alcohol,” A 63 percent majority supported legislation, proposed this year in Montpelier but never enacted, that would reduce the penalty for possessing small amounts of marijuana to a $100 fine with no jail term (it’s now a $500 fine with a maximum 6 months in prison).

That poll has to be viewed with a bit of skepticism because it was commissioned by the pro-legalization Marijuana Policy Project (which has a Vermont affiliate, the Vermont Alliance for Intelligent Drug Laws). But the poll was taken by Mason-Dixon Polling & Research, a reputable, Washington-based, polling firm, and the wording of the questions was not “loaded” to evoke a pro-legalization response.

There are limits to what states can do to change drug policy. But maybe Vermonters will remain open-minded about changing this policy if they consider that there is a least a good chance that, had marijuana been legal this last year or so, Gov. Jim Douglas and the Democrats who run the Legislature might have had enough money to do what they all wanted without having to raise anybody’s taxes.

Tags: marijuana

This entry was posted on Monday, June 22nd, 2009 at 12:15 am and is filed under Blog Info, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.