If sales of marijuana were federally legalized in all 50 states starting today, the U.S. government would collect a total of $105.6 billion in new tax revenues by 2025. That amounts to $61.6 billion more than the federal government would collect in the same period under current laws. Full legalization would also create up to 1 million new U.S. jobs.
The estimate is based on a theoretical model created by cannabis industry analytics firm New Frontier Data and described in detail in the firm’s new study, “Cannabis in the U.S. Economy: Jobs, Growth and Tax Revenue, 2018 Edition.”
New Frontier Data CEO Giadha Aguirre De Carcer said:
Under the new business tax rate of 21 percent, the Trump tax cuts will come as welcome relief to cannabis business owners who already face tax hurdles because of 280E. Lower tax rates may provide cannabis business owners greater capacity to grow and create more jobs. New Frontier Data projects increased domestic and international expansion of new legal cannabis markets and $106 billion in tax revenue over an eight-year period in the U.S.
Even though state-legal cannabis sales are illegal under federal law, many businesses already file state and local taxes for their employees. Federal law requires that Americans pay taxes no matter whether the money is earned legally or illegally (think Al Capone).
Still, under Section 280E of current U.S. tax law, state-legal cannabis companies cannot deduct business expenses from their federal tax returns. A common workaround for some businesses is simply to fail to report any net income. No income, no income tax: pretty simple.
New Frontier Data estimates that the U.S. government would collect $23.1 billion in business tax revenues from currently legal cannabis businesses in the period between 2017 and 2025 and $20.9 billion in payroll taxes. There are no projected sales taxes, so total federal taxes collected would total $43.98 billion.
If cannabis sales were legal in the whole country, the industry would pay business taxes totaling $20.4 billion and payroll taxes of $39.1 billion in the period. Add in a 15% federal sales tax on retail sales of cannabis products and total tax collections for the period would total $105.6 billion.