Federal Legalization of Marijuana Would Generate Billions in Tax Revenue

Don't expect marijuana to be legalized federally any time soon, but if it is, experts suggest that it could bring in billions of dollars in tax revenue. 2010 research from the Cato Institute estimates that legalizing marijuana federally would generate $8.7 billion in federal and state tax revenue annually. This would help Washington lawmakers balance the national budget, something that has eluded them in recent years.

The researchers assumed that marijuana would be taxed similarly to alcohol and tobacco. The income earned by pot producers, sellers, and distributors would also be subject to standard income and sales tax. In addition, state and federal authorities could save billions in money that they currently spend trying to regulate and prosecute marijuana use.

Currently, Washington and Colorado are the only two states that have legalized marijuana, but more states are considering it, including California and Oregon. It seems that the majority of Americans also support the legalization of marijuana, which was reflected in several polls across the country.

"We don’t know the size of the marijuana market right now, and we certainly don’t know what would happen to the price and the demand for marijuana under different levels of legalization. But we do know that legalization would lead to a positive revenue impact on the income and sales tax side."

                   --- Carl Davis, senior analyst at the Institute on Taxation and Economic Policy