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Elliott Morss | August 20, 2014

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A Proposal to Reduce the US Government Deficit

by Elliott R. Morss

Introduction

Republicans are learning that while it is easy to talk of austerity, being specific about deficit cuts is problematic. There are no easy choices. But I have one: not only would it reduce the deficit, but it would save a lot of lives. 

We know that cigarettes are real killers. Globally, 5.4 million people die annually from cigarette smoke. In the US, there are 443,000 cigarette deaths every year. But cigarettes are legal. Far fewer people die from using illegal drugs. The UN estimates that globally, only 100,000 die from the use of illegal drugs.

Despite massive efforts by the US government and others to eliminate illegal drugs, I estimate that annual global expenditures on drugs are $873.5 billion versus $550.4 billion for cigarettes.

Table 1. – Global Expenditures on Dangerous Addictions

  Expenditures
Addiction (bil. US$)
  Alcohol 1,163.00
  Cigarettes 550.4
  Illegal Drugs (total) 873.5
     Cannabis 354.0
     Opium 261.8
     Heroin 102.9
     Cocaine 122.0
     Amphetamines 19.0
     Ecstasy 13.8

Source: http://www.morssglobalfinance.com/global-entertainment-%e2%80%93-the-dangerous-addictions/

My deficit cutting proposal: legalize drugs. Yes, there would be more addiction and death. But there are no easy deficit reduction choices. Expenditure cutbacks would result by ending drug control and eradication outlays. Revenues would increase from taxes on drugs, and lives would be saved by ending drug wars. Each of these points will be discussed below.

Savings from Ending Drug Control and Eradication Expenditures

Since 1996, the US government has spent more than $135 billion to get rid of drugs. Table 2 presents the 2011 Federal Budget proposal for drug control. By making drugs legal, $11.8 billion could be saved. Judging by reports from the UN Office on Drugs and Crime, drug eradication outlays are a waste of money. US drug use continues.

Table 2. Federal Budget Request for Drug Control and Eradication

Activity Cost (bil. US$)
Prevention 1.9
Domestic Law Enforcement 3.9
Interdiction 3.9
International 2.1
Total Savings 11.8

Prevention, Domestic Law Enforcement, Interdiction, and International forays have not worked. Despite many efforts over the years to reduce opium growing Afghanistan, it remains the center for opium growth. And the UN Office on Drugs and Crime reports that 4.2 million Americans use Marijuana, 1.7 million use Opiods, 1.4 million use Cocaine, and 760,000 are Ecstasy users.

Taxation

Cigarettes are heavily taxed. In the US, taxes levied per pack are the equivalent to a 71% rate. Federal government revenues from cigarettes are about $7 billion annually. State and local governments raise about $17 billion every year. Together, $24 billion are collected annually from cigarette taxes.

What taxes could be generated if drugs were made legal and taxed at the same rates as cigarettes? Out of the $550.4 billion in global cigarette sales, the US share is approximately $79 billion. My sense is that the US share of illegal drug sales is much higher. So with global drug outlays of $875 billion, probably $400 billion is ending up in the US. If drugs were made legal, prices would come down dramatically: much of that price is a premium paid for illegal trades. So let us suppose that at lower prices, $100 million of legal drugs was sold in the US. If the same effective tax rate was levied on drugs as cigarettes (70%), this would generate $70 billion in revenues for Federal, state and local governments. The states could certainly use the revenue. If the Federal share was the same as it is for cigarette taxes, drugs would generate $20 billion in taxes for the Federal government.    

Deaths

Getting data on drug-related deaths is difficult. In the US, the FBI reports about 1,000 homicides are drug-related annually. Reports out of Mexico estimate 34,000 have died in drug violence since President Felipe Calderon launched a crackdown against cartels in 2006. All of these deaths involve efforts to control illegal but lucrative markets. If drugs were made legal, drug companies would produce and sell the legalized drugs, and these deaths would end.

Conclusions

The Federal government deficit would be reduced by $32 billion annually if drugs were legalized. States would get an additional $50 billion to help with their deficits.

Deaths would probably be a wash. Deaths would fall because drug wars end. Deaths would increase as a result of drug addictions.

One final important point: A historical review of efforts to ban products in the US shows it is fruitless: if there is a demand, an illegal market always develops. I believe that what is done with cigarettes, a real killer, is the most sensible solution: make it legal, tax it heavily, and run media campaigns to warn of its dangers.  

Deficit reductions? There are no easy solutions.

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