Source: CATO Institute

September 27, 2010

by Jeffrey A. Miron and Katherine Waldock

State and federal governments in the United States face massive looming
fiscal deficits. One policy change that can reduce deficits is ending the
drug war. Legalization means reduced expenditure on enforcement and an
increase in tax revenue from legalized sales.

This report estimates that legalizing drugs would save roughly $41.3
billion per year in government expenditure on enforcement of prohibition.
Of these savings, $25.7 billion would accrue to state and local
governments, while $15.6 billion would accrue to the federal government.

Approximately $8.7 billion of the savings would result from legalization
of marijuana and $32.6 billion from legalization of other drugs.

The report also estimates that drug legalization would yield tax revenue
of $46.7 billion annually, assuming legal drugs were taxed at rates
comparable to those on alcohol and tobacco. Approximately $8.7 billion of
this revenue would result from legalization of marijuana and $38.0 billion
from legalization of other drugs.

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Jeffrey A. Miron is a senior lecturer in economics at Harvard University
and a senior fellow at the Cato Institute. Professor Miron earned his
Ph.D. from the Massachusetts Institute of Technology and chaired the
economics department at Boston University prior to joining the Harvard
faculty. Katherine Waldock is a doctoral candidate at the Stern School of
Business at New York University.

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