Libertarian Miron from the libertarian Cato institute estimates $42 billion in savings from enforcement of drug laws, and $47 billion in additional revenue from taxing drugs at roughly the rate of alcohol. That means $89 billion a year in savings from enforcement plus revenue from taxing.
How much trust do I put into the study? The way I think about it is this: Jeffrey Miron is a libertarian who works for the libertarian Cato institute, so I’d normally mentally adjust the estimate downward because libertarians like reasons why drug prohibition is bad. But in this case, I happen to find Jeffrey Miron in particular intellectually honest. He’s not a fundamentalist libertarian, and he typically acknowledges evidence that isn’t libertarian at all. Drug laws are also his specialty. Moreover, the report also, “assumes that the demand for drugs would not shift” (reasons on pg. 8). To the extent that laws actually are discouraging drug use, which is a very real possibility, his estimate is too low. I also don’t think that rigid nature of the evidence leaves him much play to skew the evidence according to libertarian biases. Drug use is what it is, enforcement costs are what they are, and the only thing he has to play with is how much drugs are discouraging drug use, which he leaves at 0!
In light of that, I take Jeffrey Miron’s estimates as a good ball-park figure. In the scope of things, $89 billion isn’t going to fundamentally change anything. It is a good chunk, but when people talk about taxing drugs they oftentimes make believe that this is going to pay down the debt, or pay for some major government program like universal health care. It isn’t. Not even close. Total government revenue is $5.5 trillion (including state and local, since Jeff included them in his estimate). That’s about 1.5% increase in tax revenue.
Another thing: we should see this kind of increase in tax revenue as a good thing. Hypothetically, this increase in tax revenue could be given back to tax payers, but that isn’t going to happen. Government is going to be the one spending the additional revenue. Isn’t that a bad thing from a libertarian point of view? I don’t think so. Most of the things that government creates aren’t bad (except perhaps offensive defense spending). It is that the resources being employed have higher valued alternative uses. Health care, education, and care for the elderly are all valuable. But the relevant question is what is the opportunity cost? When government taxes a market, the government grows and the market shrinks. But in the case of the additional revenue from drug legalization, it isn’t taxing an already existing market, it is taxing a market that formerly did not even exist. So without regard for the other costs and benefits of drug prohibition/legalization, this is free money, and an extra marginal benefit for legalizing drugs.
