Tag: tax revenue

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Kick the Addiction, Save Money

marijuana, tax revenue, taxes, spending, war on drugs, opioid epidemic

The political case for the War on Drugs has always been intuitive. “Drugs are bad” has trumped practical concerns. But the actual, responsible case for the political crusade has depended upon some concept of “social cost.” 

Now that marijuana is being legalized state by state, the case against the greater War on Drugs is being taken seriously — enough to rethink all varieties of costs. Indeed, many now see the opioid epidemic as being driven, in part, by the War on Drugs, and not just as an excuse for a stronger crackdown.

Nevertheless, coming to some accounting — especially “social cost” accounting — remains difficult. This is especially true so long as its effects on freedom and the rule of law do not get figured in.

Somewhat surprisingly, even the budgetary effects of legalization have proven a bit tricky.

So it is welcome to read Harvard economist Jeffrey Miron’s study of marijuana legalization as it has occurred in the states of Washington, Oregon, and Colorado. He compares results of legalization with the predictions he had made eight years ago, in a previous Cato Institute study. It turns out that while tax revenues are far greater than expected, law enforcement costs have not gone down. 

“Early experience suggests that governments will reallocate rather than reduce those expenditures,” Miron writes. “That reallocation may be beneficial, but it does not have a direct effect on the budget deficit.”

On a federal level, though, we might expect greater savings. How? We could shut down whole bureaus.

Yet, achieving such savings would require progress on Washington’s biggest addiction: spending.

This is Common Sense. I’m Paul Jacob.

 

Studies cited:

Jeffrey Miron, “The Budgetary Effects of Ending Drug Prohibition,” Cato Tax & Budget Bulletin, Number 83, July 23, 2018.

Jeffrey A. Miron and Katherine Waldock, “The Budgetary Impact of Ending Drug Prohibition,” Cato Institute white paper, September 27, 2010.

PDF for printing

 

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tax policy

Tax Your Brain First

President Obama thinks that the federal government should tax the rich more, starting by closing itemizations “for the wealthiest 2 percent of Americans.” 

He says this will go a long way to reducing the deficit. But in the very sentence he advances it, he says it would “reduce the deficit by $320 billion over ten years.” Not in the first year, which might amount to something, but over a decade’s long stretch.

Big deal.

But, baby steps. Anything to raise taxes.

Democrats in Congress need to tax their brains, first. 

Unlike the bulk of the population, the rich don’t have to earn more to retire. That’s what it means to be rich. So, the more you take from their incomes, the less incentive they have to go out earning incomes. 

When tax rates rise, greater numbers of wealthy folk switch employment of their capital from productive enterprise (“making more”) to consumption. Not only are they then taxed less, but they employ fewer workers, who therefore pay fewer taxes.

This adds up, as can easily be seen by graphing tax revenue along with top marginal tax rates since World War II. Result? Tax revenues tend to hover just under 19 percent, despite radically different tax rates. As Reason TV’s Nick Gillespie puts it, “Any budget plan based on revenue being better than 19 percent of GDP is just blowing smoke.”

Which suggests where Obama’s audacious hope to resolve the federal budget crisis by raising taxes will end up — in smoke.

This is Common Sense. I’m Paul Jacob.