Last week the California Assembly Public Safety Committee held a hearing on a bill that allows marijuana to be taxed and sold legally to adults. The Board of Equalization estimates that pot sales could generate a whopping $1.4 billion net annual revenue gain for the state. But that's based on a lot of assumptions--none backed up by hard data.
A more sober analysis of the budgetary impact of legalizing pot was done in 2005 by Jeffrey Miron, a visiting Harvard economics professor. He concluded that lifting the prohibition on marijuana helps government budgets by generating tax revenue and saving money on enforcement. The national bottom line:
The [Harvard] report estimates that legalizing marijuana would save $7.7 billion per year in government expenditure on enforcement of prohibition. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
The report also estimates that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.
Broken out by state, Miron estimated that California would save $981 million annually in law enforcement costs (including police, judicial and corrections expenditures), plus generate $105.4 million in additional state taxes. (Again these are 2005 projections.)