LEGALIZE, TAX MARIJUANA TO FILL BUDGET GAP

As every state faces a budget crisis and our Legislature repeals
voter-approved initiatives to fill the budget gap, creative solutions are
needed. A
lucrative idea yet to be proposed is to legalize and tax marijuana.While
seemingly a
radical leftist idea, legalizing and taxing marijuana would not only help
close the hole in the budget but also provide much-needed jobs and help to
farmers. Domestically grown marijuana is the second largest cash crop in
the United
States, behind only corn.

The end to marijuana prohibition would merely require the rescheduling of
marijuana from a Schedule I to a non-scheduled drug, similar to alcohol,
nicotine, caffeine or ibuprofen. Once the federal government had
decriminalized
marijuana, all states would have the option of legalizing it. States could
either be
"smoky" or "clear," similar to "wet" and "dry" locales after Prohibition
ended in the 1930s. In addition, counties or municipalities could be "clear"
jurisdictions if they so chose.

A model for how marijuana would be sold and how the taxes would be collected
is the state liquor system. Here, liquor may be sold only by the bottle in
state-run liquor stores. There is an excise tax on the liquor and a sales
tax is
charged to all non-industry customers.

Similarly, marijuana would only be sold in state-run stores, possibly in
current liquor stores. Ordinary customers could pay a variety of taxes on the
marijuana bought there, including a federal excise tax, a state excise tax
and a
sales tax. Customers also would have the option of going to marijuana bars,
possibly including current alcohol bars, to buy marijuana to be smoked there.

By legalizing this drug, the government would save the money it currently
spends fighting the war on marijuana. The federal government spends $19.2
billion
every year in fighting the war on drugs; state governments combined spend
$77.8 billion every year in this effort. Conservatively estimated, 20
percent of
the government's war on drugs expenditures goes toward marijuana. Assuming
that Washington state spends one-fiftieth of the states' combined expenditure,
this means we spend somewhere around $300 million to fight marijuana.

The government could also raise revenues by placing an excise tax on
marijuana, much like the excise taxes imposed on alcohol and cigarettes. A
federal
excise tax of 6 percent on the $11 billion U.S. consumers spend on marijuana
every year would produce $660 million for the federal government. Similarly,
Washington could impose excise and sales taxes on marijuana. If Washingtonians
smoke one-fiftieth of the total marijuana smoked in the United States, we
consume
$220 million worth of marijuana every year. A 6 percent excise tax would bring
in $13.2 million every year for the state. The average state and local sales
tax is around 8 percent, which would bring in another $17 million every year.

Yet another source of revenue would be from taxing all the income derived
from the marijuana industry that currently goes unreported. In a nation with
legalized marijuana, many workers would earn income from the marijuana
industry,
among them agricultural workers, farmers, factory workers, salespeople and
CEOs.

Assuming that the $11 billion gross sales of marijuana would generate half
that much in taxable income, the government could tax an additional $5.5
billion
of income. The federal income tax rate varies due to taxable income and
deductions, but assuming a 20 percent average tax rate and $5.5 billion in
marijuana income, the federal government could collect $1.1 billion in
income taxes
every year.

In addition, the federal government could bring in $382 million in FICA
taxes. Forty-one states have an income tax. In states with income taxes,
they range
from 0.36 percent in Iowa's lowest bracket to 25 percent in Rhode Island's
highest bracket. Assuming an average tax rate of 5 percent on income from the
marijuana industry, the states combined would bring in $275 million.
Washington
state does not have a state income tax, so it would not gain any extra revenue
when the income from marijuana became taxable.

Adding up all the numbers, the federal government would have additional
revenues of $6 billion a year and the states an additional $17 billion for a
combined total of $23 billion a year. This money could pay for the entire
food stamp
program, provide a tax rebate of approximately $150 per taxpayer per year or
pay for a war with an axis of evil regime. Washington state's portion of the
marijuana pie would be $330 million; that might not be enough to solve our
next
budget crisis, but it is a start.

Source: Seattle Post-Intelligencer (WA)
Author: Maureen Brown
Published: Thursday, August 14, 2003
Copyright: 2003 Seattle Post-Intelligence