Cato Study: ‘War on Drugs’ Squanders $88 Billion a Year

September 27, 2010

Media Contact: (202) 789-5200

Drug criminalization policies in the United States drain $88 billion annually from state, local and federal government coffers, according to a report released Monday by the Cato Institute.

The Budgetary Impact of Ending Drug Prohibition,” by Harvard economist and Cato Senior Fellow Jeffrey Miron and Katherine Waldock, concludes that current drug policy costs governments $41.3 billion each year to implement, while depriving their budgets of $46.7 billion in potential revenues from taxation of legal drug sales.

The revenue figure was derived assuming roughly the same taxation rate currently used for alcohol and tobacco sales. Also factored in is the tax revenue on the income earned by producers—currently concealed in a shadowy black market—that would be subject to standard income and sales taxation.

“State and federal governments in the United States face massive looming fiscal deficits,” Miron and Waldock write. “One policy change that can reduce deficits is ending the drug war.”

While other Cato Institute studies have looked in detail at the overall ineffectiveness of drug criminalization policy—and its unintended ill effects, such as massive violence among drug traffickers—this latest report focuses on the fiscal impact of drug prohibition. Miron and Waldock provide state-by-state and federal data on both the revenue and expenditure sides, detailing the outlays for aspects of the drug war such as prosecution and incarceration, as well as the budgets for agencies such as the Drug Enforcement Administration (DEA) and the Office of National Drug Control Policy (ONDCP).

The study also breaks down all of its data according to type of drug—marijuana, cocaine/heroin, and synthetics.

One of the study’s key foci is on the significance of “stand-alone” drug arrests. These are arrests solely for a drug offense—usually a minor, victimless infraction such as possession—rather than a drug offense that is incidental to a violent or other more serious crime. Despite an alarming lack of hard data kept by enforcement agencies on that important distinction, it is safe to conclude that as many as 50 percent of all drug-related arrests are not associated with any other crime, the report notes.

Among the study’s other key findings:

  • Cash-strapped California spends twice that of any other state on all aspects of drug prohibition—more than $5.37 billion. Other top spenders include New York ($2.37 billion), Texas ($1.67 billion) and Florida ($1.49 billion).
  • While there are numerous state ballot initiatives to relax restrictions on marijuana—and one in California to legalize possession outright—marijuana alone still accounts for 9.6 percent of all felony convictions nationwide. Cocaine and heroin together account for 15.1 percent of felony convictions.
  • The percentage of state and local police budgets dedicated to prosecuting sales and manufacture of drugs is 1.74 percent. For drug possession, the figure is more than double that—4.28 percent.
  • Drug cases consume more than one sixth of total state and local judicial budgets—17.27 percent.

Click here to read the full report