CATO Study Argues Tax Benefits Of Full Drug Legalization, Doesn't Consider Costs

A recent report from the CATO institute revived the argument that all drugs should be legalized, examining the issue through a fiscal lens. America’s dire opioid crisis is cited as the impetus for the latest push to consider how legalizing all drugs could benefit state revenues, but the lack of a one-for-one comparison of how these revenues would actually look leaves the pro-legalization argument wanting.

The CATO report cites some seemingly compelling statistics that should be considered when weighing the efficacy of the argument:

- “Legalization can reduce government spending, which saves resources for other uses, and it generates tax revenue that transfers income from drug producers and consumers to public coffers.

- All told, drug legalization could generate up to $106.7 billion in annual budgetary gains for federal, state, and local governments. Those gains would come from two primary sources: decreases in drug enforcement spending and increases in tax revenue

- This bulletin estimates that state and local governments spend $29 billion on drug prohibition annually, while the federal government spends an additional $18 billion. Meanwhile, full drug legalization would yield $19 billion in state and local tax revenue and $39 billion in federal tax revenue.” (CATO Institute)

Those who favor the legalization of all drugs also have some compelling foreign examples that apply within the debate over American drug policy to varying degrees.

In 2001, Portugal became the first European nation to officially abolish all of its laws against drug possession for personal use. Their drug problem – opioids in particular – had gotten out of hand, and the replacement of incarceration with an option to enter rehabilitation therapy was believed to incentivize drug users coming forward, as opposed to remaining anonymous due to fear of incarceration. It was another CATO Institute study that seemingly backed the results in Portugal.

“Compared to the European Union and the U.S., Portugal's drug use numbers are impressive. Following decriminalization, Portugal had the lowest rate of lifetime marijuana use in people over 15 in the E.U.: 10%. The most comparable figure in America is in people over 12: 39.8%. Proportionally, more Americans have used cocaine than Portuguese have used marijuana.

The Cato paper reports that between 2001 and 2006 in Portugal, rates of lifetime use of any illegal drug among seventh through ninth graders fell from 14.1% to 10.6%; drug use in older teens also declined. Lifetime heroin use among 16-to-18-year-olds fell from 2.5% to 1.8% (although there was a slight increase in marijuana use in that age group).

New HIV infections in drug users fell by 17% between 1999 and 2003, and deaths related to heroin and similar drugs were cut by more than half. In addition, the number of people on methadone and buprenorphine treatment for drug addiction rose to 14,877 from 6,040, after decriminalization, and money saved on enforcement allowed for increased funding of drug-free treatment as well.” (CATO via Time)

These statistics, while compelling on many levels, are not reflective of the aim of the most recent pro-legalization argument from CATO’s Jeffrey Miron. His main argument is not necessarily one that puts the health of drug users or society’s overall functionality at the forefront. Instead, he is concerned with the money that could be saved from abandoning the prohibition on drugs. And there are a couple of issues with making this argument the way he does, relying heavily on the tax revenues that would be saved from stopping incarceration for drug offenses. The issue is that Miron does not take the time to comprehensively calculate the additional costs that may arise once drugs are legalized, including:

  • the social and real costs that would arise from having more drug-addicted citizens on the streets, instead of locked away from society for long periods of time.
  • the cost of rehabilitation, which is almost always used as a substitute for incarceration.
  • the likelihood that, even if the costs currently dedicated to prosecuting drug crimes were decreased, the government would be more than eager to find a way to spend that money in other ways.

These are some of the issues that arise in so many debates over the legalization of drugs other than marijuana. The revenues saved are fairly easy to project, but the mitigating costs are not. Nations like Portugal and those who support similar legalization policies are quick to point out the benefits of their policies, such as lower disease and addiction rates, but rarely put forward comprehensive statistics outlining the overall net savings (or losses) when all of the factors related to drug legalization are weighed.

And so, many of these arguments remain largely theoretical, and typically only fall into the realm of tangibility based on incomplete data. Frequently, the rise in crime and liquor consumption during America’s Prohibition era are cited as evidence that prohibition of any kind is a foolhardy quest. While even those skeptical of legalization would admit America’s war on drugs has been far from the success many had hoped, hard drugs and alcohol are not a one-to-one correlation, and cannot be compared as if they are.

The argument over legalization’s merits requires a fair shake for both sides. Citing the potential revenue windfall and health benefits that may come from greater oversight and de-stigmatization of hard drugs is fine, but flipping those perceived benefits on their heads is necessary, too. De-stigmatization and lax enforcement is not always positive, and will vary based on the relative values of a community and, as we’ve seen in America, different generations. The costs of legalization must be thoroughly tested and weighed against the benefits, but as of now those metrics tend to be collected (or not collected) in a manner that is overly pro-legalization.

Until somebody becomes willing to collect more comprehensive data, whether it means traveling to Portugal or creating more elaborate projections, the argument over legalization will continue to seem one-sided and befitting of the side being argued for. Theoretical arguments will continue to give way to exaggeration and speculation, and the way forward regarding the war on drugs will remain a murky path.

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