"This report concludes that drug legalization would reduce government expenditure by $44.1
billion annually. Roughly $30.3 billion of this savings would accrue to state and local governments, while roughly $13.8 billion would accrue to the federal government. Approximately $12.9 billion of the savings would results from legalization of Marijuana, $19.3 billion from legalization of cocaine and heroin, and $11.6 from legalization of all other drugs."
"The estimates are ballpark figures that indicate what order of magnitude policymakers should expect from legalization."
"To estimate the state and local savings in criminal justice resources, this report . . . estimates the percentage of state and local arrests for drug violations and multiplies this percentage by the state and local budget for police. It estimates the percentage of state and local felony convictions for drug violations and multiplies this percentage by the state and local budget for prosecutors and judges. It estimates the percentage of state and local incarcerations for drug violations and multiplies this percentage by the state and local budget for prisons. It then sums these components to estimate the overall reduction in state and local government expenditure. Under plausible assumptions, this procedure yields a reasonable estimate of the cost savings from drug legalization. "
Taxes
"In addition to reducing government expenditure, drug legalization would produce tax revenue from the legal production and sale of drugs. To estimate the revenue, this report employs the following procedure. First, it estimates current consumer (retail) expenditure on drugs under prohibition. Second, it estimates the expenditure likely to occur under legalization. Third, it estimates the tax revenue that would result from this expenditure based on assumptions about the kinds of taxes that would apply to legalized drugs."
"Legalization would also generate tax revenue of roughly $32.7 billion annually if drugs were taxed at rates comparable to those on alcohol and tobacco. Approximately $6.7 billion of this revenue would result from legalization of marijuana, $22.5 billion from legalization of cocaine and heroin, and $3.5 billion from legalization of all other drugs."
Demand
"This report assumes there would be no shift in the demand for drugs. This assumption likely errs in the direction of understating the tax revenue from legalized drugs, since the penalties for possession potentially deter some persons from consuming. Any increase in demand as a result of legalization, however, would plausibly come from casual users rather than heavy users, since heavy users are the ones with strong desire to consume drugs and are therefore already consuming despite prohibition. Any increase in use might also come from decreased consumption of alcohol, tobacco or other goods, so increased tax revenue from legal drugs would be partially offset by decreased tax revenue from other goods. Forbidden fruit effects from prohibition might also tend to offset the demand decreasing effects of penalties for possession. Thus, the assumption of no change in demand is plausible, and it likely biases the estimated tax revenue downward. "
Lower drug prices
"Under the assumption that demand does not shift due to legalization, any change in the quantity and price would result from changes in supply conditions. Two main effects would operate. On the one hand, drug suppliers in a legal market would not incur the costs imposed by prohibition, such as the threat of arrest, incarceration, fines, asset seizure, and the like. This means that, other things equal, costs and therefore prices would be lower under legalization. On the other hand, drug suppliers in a legal market would bear the costs of tax and regulatory policies that apply to legal goods but that black market suppliers normally avoid. This implies an offset to the cost reductions resulting from legalization. Further, changes in competition and advertising under legalization can potentially yield higher prices than under prohibition."
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