Implications of cannabis legalization for the US federal budget

Federal legislation to legalize, regulate, and tax cannabis could have significant impacts on the federal budget. While the specific details of any potential cannabis legalization legislation are unknown at present, such reforms are likely to affect both tax receipts and federal outlays through a wide range of mechanisms including excise tax collections, changes in the size and composition of the labor force, and the major federal health care programs. We identify the main federal budgetary implications of legalizing cannabis and estimate their likely magnitude where possible. We identify the main federal budgetary impacts of legalizing cannabis and estimate their potential magnitude where possible. We improve over the limited prior work in this area by analyzing a (much) wider set of sources of federal revenue and spending. Our key findings on the revenue side are that the largest potential effect arises from an increase in labor-force participation, while increases in tax revenue from an excise tax on cannabis could be significant as well. On the spending side, whether cannabis products will be treated as "normal" prescription drugs will be crucial to the budgetary effects of legalization as that would trigger spending on cannabis through the Medicare, Medicaid, and veterans' health programs.