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Both Washington and Colorado have demonstrated that one of the key realities of marijuana legalization is strongly associated with the ability of these places to also tax the product. For instance, people in Washington recognized almost immediately that they could capitalize on marijuana usage through an excise tax. This special tax was levied at 25-percent of the sale price. Colorado also passed an excise tax, coming in at 15-percent. Colorado also levies a 10-percent sales tax on the product, which provides for a full quarter tax in a similar manner to the one imposed in Washington. While not a lot of data exists at this point to confirm the levels of tax receipts that these two places can expect over the long run, there is a suggestion that in the state of Washington, $500 million will have been raised in 2013 and 2014 alone. Similar projections exist for Colorado, which expects to capitalize on the existing base of marijuana users without having to even generate a huge new market.
In Colorado, the economic impact is expected to be startling. In fact, independent projections suggest that the state will be able to produce around $75 million per year in tax receipts alone. Those tax gains are expected to be used in a variety of different ways. For one, they are expected to be utilized in order to improve schools and roads within the state. Likewise, the state has been able to divert some of the money into programs that try to help those people who are addicted to more serious drugs. What this suggests, then, is that pot users are subsidizing the rehabilitative services of people who use hard drugs, which could potentially save lives, while also providing the state with a major economic benefit.
In addition, these states have allowed individual municipalities the ability to set their own tax rates. Just as an individual city can sometimes vote to raise its own sales tax or perhaps its alcohol tax – commonly called a “hospitality tax” – a city can choose to impose higher tax rates on pot. This ends up being a major boon for individual communities, where it can be difficult to raise money for things like local policing or other local projects. The ability to apply a flexible taxation policy is something that states seem to benefit from in a tangible sense.
It would be foolish to simply look at marijuana legalization through the prism of tax receipts. In fact, there are many different ways to look at what legalization will save a state. Included in these ways are criminal justice system costs. Each year, states around the country spend millions of dollars on things like policing, courts, and jails. In fact, America currently incarcerates more than two million people, many of them spending their time in jail on either federal or state-level drug charges. While it is certainly true that not all people in these prisons are there for drug charges, and not all people incarcerated for drugs are there for marijuana, marijuana users do comprise a significant portion of these populations.
It is very difficult to know precisely just what the impact of legalization has been in states like Colorado and Washington. One of the unique problems associated with this assessment is that these states will still employ police, courts, prisons, and the like, even without marijuana laws. One of the questions that poses difficulty for those conducting an analysis is how to assess the economic impact on lightening the burden on those who provide the government with these services. However, there are some ways of understanding this, and there are a number of different sources that have provided their estimations of what the economic impact might ultimately look like.
According to Harvard University research conducted by Jeffrey Miron, states in general would stand to save around $5.3 billion per year on enforcement costs if marijuana was made legal. Now, this is an aggregate total, and in the case that Ohio legalized the drug, it would only be saving a small portion of that number. However, even if one assumes that one one-percent of the cost savings would accrue to Ohio, one is still looking at roughly $53 million in enforcement costs that could be saved under that admittedly conservative estimate.
The Supreme Court of the United States mandated in Gideon v. Wainwright that if a person is accused of a crime in which that person could potentially lose his or her liberty, then the state is required to provide an attorney in order for the state to comply with the sixth amendment of the constitution, which itself requires the person to receive a fair trial in order for a conviction to stand. This has given states significant flexibility in terms of how they provide that lawyer – either through an organized public defender system or through some arrangement where private lawyers take their place – but it has put a financial burden onto states, which must invest millions each year in paying these lawyers. According to some research costs for indigent defense have been increasing rapidly in the state of Ohio over the last two decades. In fact, between 1992 and 2001, public defender costs increased by more than 100-percent. This forced the state to consider finding some way to fund this increase, and the state turned its attention to passing along the costs to the people who have their cases heard in court. The state increased its court costs in a significant way. This, however, seems to be an untenable solution, since the entire basis for giving people criminal defense lawyers in this context has to do with their inability to pay. Simply passing the buck to these individuals is something that is not likely to be sustainable over the long run, and it leaves the state looking for new ways to either raise funding or cut need.
While raising new funding has proven to be very difficult, cutting costs is something that could be an effective approach. By legalizing marijuana, fewer people would need lawyers for these low-level offenses. The state would be able to utilize its resources on lawyers to defend people who have been accused of more serious crimes. While it is not an economic benefit, this would also create a scenario where there would be less incentive for lawyers to simply convince their clients to plead out to marijuana charges, creating a fairer criminal justice arrangement.
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