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Report: Marijuana legalization trades taxes for social problems

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(The Center Square) — Legalized recreational marijuana in a number of states give Pennsylvania some test cases for what to consider in its own debates.

A recent paper from the Federal Reserve Bank of Kansas City notes that the tradeoff of legalization might be: more economic growth, but more social problems too.

“Overall, our results suggest that the distribution of economic benefits of recreational legalization are likely shared more widely compared to the costs. Widely distributed benefits versus more concentrated costs indicate that policymakers should be cautious in discounting the existence of potential costs of recreational legalization,” Jason Brown, Elior Cohen, and Alison Felix of the Federal Reserve Bank wrote.

Though the data were messy and much of what Brown, Cohen, and Felix found wasn’t statistically significant, their paper could serve as a note of caution to Pennsylvania policymakers.

New York, New Jersey, and Maryland have legalized recreational marijuana on the commonwealth’s borders, which could mean that tax revenue benefits (but also negative changes in crime and addiction) in Pennsylvania would be less dramatic.

States like Colorado that legalized early had more significant changes.

“One important finding is that the estimated economic benefits appear larger for states who legalized earlier,” Brown, Cohen and Felix wrote. “States that legalized later had smaller estimated benefits in our analysis perhaps due to it being less novel or less of a perceived amenity or actual demand shock from ‘marijuana tourism’ compared to the first states that legalized recreational use.”

When legalization does boost the economy, individual returns tend to be small while costs fall harder on “heavy-user individuals,” Brown, Cohen, and Felix wrote.

Legalized marijuana might also be a substitute for tobacco and alcohol, driving down taxes from those sources but providing an overall increase.

“Even after accounting for substitution between alcohol and tobacco and cannabis, legalization generates a meaningful increase in tax revenues,” they wrote.

Much of the debate in the General Assembly has focused on potential tax revenue gains, though some legislators have concentrated on public safety concerns. Gov. Josh Shapiro’s budget proposal included a tax rate for recreational marijuana that legalization advocates called “prohibitively high” and akin to California, which has a risk of stifling a legal market. New Jersey had a similar problem in growing its legal sales due to the slow expansion of dispensaries.

Despite the problems and the hurdles that remain, however, bipartisan efforts in the General Assembly have pressed to make Pennsylvania the 24th state to legalize marijuana.

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