Pubdate: Sun, 17 May 2009
Source: New York Times (NY)
Page: WK14
Copyright: 2009 The New York Times Company
Contact:  http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Nick Gillespie
Note: Nick Gillespie is the editor in chief of Reason.com and Reason.tv.
Bookmark: http://www.mapinc.org/people/Kerlikowske

PAYING WITH OUR SINS

THE Obama administration's drug czar made news last week by saying he 
wanted to end all loose talk about a "war on drugs." "We're not at 
war with people in this country," said the czar, Gil Kerlikowske, who 
favors forcing people into treatment programs rather than jail cells.

Here's a better idea -- and one that will help the federal and state 
governments fill their coffers: Legalize drugs and then tax sales of 
them. And while we're at it, welcome all forms of gambling (rather 
than just the few currently and arbitrarily allowed) and let 
prostitution go legit too. All of these vices, involving billions of 
dollars and consenting adults, already take place. They just take 
place beyond the taxman's reach.

Legalizing the world's oldest profession probably wasn't what Rahm 
Emanuel, the White House chief of staff, meant when he said that we 
should never allow a crisis to go to waste. But turning America into 
a Sin City on a Hill could help President Obama pay for his ambitious 
plans to overhaul health care and invest in green energy. More taxed 
vices would certainly lead to significant new revenue streams at 
every level. That's one of the reasons 52 percent of voters in a 
recent Zogby poll said they support legalizing, taxing and regulating 
the growth and sale of marijuana. Similar cases could be made for 
prostitution and all forms of gambling.

In terms of economic stimulation and growth, legalization would end 
black markets that generate huge amounts of what economists call 
"deadweight losses," or activity that doesn't contribute to increased 
productivity. Rather than spending precious time and resources 
avoiding the law (or, same thing, paying the law off), producers and 
consumers could more easily get on with business and the huge 
benefits of working and playing in plain sight.

Consider prostitution. No reliable estimates exist on the number of 
prostitutes in the United States or aggregate demand for their 
services. However, Nevada, one of the two states that currently 
allows paid sex acts, is considering a tax of $5 for each 
transaction. State Senator Bob Coffin argues further that imposing 
state taxes on existing brothels could raise $2 million a year (at 
present, brothels are allowed only in rural counties, which get all 
the tax revenue), and legalizing prostitution in cities like Las 
Vegas could swell state coffers by $200 million annually.

A conservative extrapolation from Nevada to the rest of the country 
would easily mean billions of dollars annually in new tax revenues. 
Rhode Island, which has never explicitly banned prostitution, is on 
the verge of finally doing so -- but with the state facing a $661 
million budget shortfall, perhaps fully legalizing the vice (and then 
taking a cut) would be the smarter play.

Every state except Hawaii and Utah already permits various types of 
gambling, from state lotteries to racetracks to casinos. In 2007, 
such activity generated more than $92 billion in receipts, much of 
which was earmarked for the elderly and education. Representative 
Barney Frank, Democrat of Massachusetts, has introduced legislation 
to repeal the federal ban on online gambling; and a 2008 study by 
PriceWaterhouseCoopers estimates that legalizing cyberspace betting 
alone could yield as much as $5 billion a year in new tax revenues. 
Add to that expanded opportunities for less exotic forms of wagering 
at, say, the local watering hole and the tax figure would be vastly larger.

Based on estimates from the White House Office of National Drug 
Control Policy, Americans spend at least $64 billion a year on 
illegal drugs. And according to a 2006 study by the former president 
of the National Organization for the Reform of Marijuana Laws, Jon 
Gettman, marijuana is already the top cash crop in a dozen states and 
among the top five crops in 39 states, with a total annual value of 
$36 billion.

A 2005 cost-benefit analysis of marijuana prohibition by Jeffrey 
Miron, a Harvard economist, calculated that ending marijuana 
prohibition would save $7.7 billion in direct state and federal law 
enforcement costs while generating more than $6 billion a year if it 
were taxed at the same rate as alcohol and tobacco. The drug czar's 
office says that a gram of pure cocaine costs between $100 and $150; 
a gram of heroin almost $400; and a bulk gram of marijuana between 
$15 and $20. Those transactions are now occurring off the books of 
business and government alike.

As the history of alcohol prohibition underscores, there are also 
many non-economic reasons to favor legalization of vices: Prohibition 
rarely achieves its desired goals and instead increases violence 
(when was the last time a tobacco kingpin was killed in a deal gone 
wrong?) and destructive behavior (it's hard enough to get help if 
you're a substance abuser and that much harder if you're a criminal 
too). And by policing vice, law enforcement is too often distracted 
at best or corrupted at worst, as familiar headlines about cops 
pocketing bribes and seized drugs attest. There's a lot to be said 
for treating consenting adults like, well, adults.

But there is an economic argument as well, one that Franklin 
Roosevelt understood when he promised to end Prohibition during the 
1932 presidential campaign. "Our tax burden would not be so heavy nor 
the forms that it takes so objectionable," thundered Roosevelt, "if 
some reasonable proportion of the unaccountable millions now paid to 
those whose business had been reared upon this stupendous blunder 
could be made available for the expense of government."

Roosevelt could also have talked about how legitimate fortunes can be 
made out of goods and services associated with vice. Part of his 
family fortune came from the opium trade, after all, and he and other 
leaders during the Depression oversaw a generally orderly 
re-legalization of the nation's breweries and distilleries.

There's every reason to believe that today's drug lords could go 
legit as quickly and easily as, say, Ernest and Julio Gallo, the 
venerable winemakers who once sold their product to Al Capone. 
Indeed, here's a (I hope soon-to-be-legal) bet worth making: If 
marijuana is legalized, look for the scion of a marijuana plantation 
operation to be president within 50 years.

Legalizing vice will not balance government deficits by itself -- 
that will largely depend on spending cuts, which seem beyond the 
reach of all politicians. But in a time when every penny counts and 
the economy needs stimulation, allowing prostitution, gambling and 
drugs could give us all a real lift.
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MAP posted-by: Richard Lake