5 Sinful Ways to Solve the Debt Crisis
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The Fiscal Times
July 26, 2011

With federal and state governments scrounging for new revenue sources, it might be time to tap into revenue sources that have been totally off limits up until now.  Think "sin" taxes, and all that implies. 

 

What if federal and state governments legalized and taxed pot and other illegal drugs? What if the federal government legalized prostitution?

Although these and other ideas face huge roadblocks,  economists interviewed by The Fiscal Times say the fiscal picture is so bleak that "taboo" fundraising could become much more realistic in the near future. These five revenue sources could  yield about $244 billion annually, according to some estimates-- more than half of the $4 trillion dollars over 10 years that the president's fiscal commission recommended.

“Desperation makes original ideas come out of the woodwork, and this is just the beginning,” said Marty Sullivan, a contributing editor at Tax Analysts. “Wacky ideas are going to become more mainstream as our budget pressures get tighter.”

Here are 5 sinful  ways to solve the debt crisis. 

1. Create a National Lottery

  • Yearly federal revenue: $48.6 billion (derived from an estimate based on the New York lottery, which brought in $3.05 billion in revenue for education in 2010)

Forty-four states have lotteries – why not the federal government? States have used the revenue for education, infrastructure and senior citizen programs, raising more revenue than the state corporate income tax in 11 states in 2009, according Tax Foundation data. A similar structure could be a jackpot for the federal government, said Tax Analysts’ Sullivan. “The GOP likes it because it’s not a tax, Democrats like it because it raises revenue, and citizens like it because it’s a voluntary, legal form of gaming. Bingo.”

One complication: If the federal government created a lottery, states thus far dominating the field would fiercely object. “Unless you believe people will play an unlimited number of lotteries, there will be some substitution between the two, so that’s politically sensitive,” said Joseph Cordes, economics professor at George Washington University.

2. Legalize and Tax Pot and Other Drugs

  • Yearly tax revenue: $46.7 billion ($31.2 billion federal, $15.6 billion state)
  • Yearly enforcement cost savings: $40.3 billion ($15.6 billion federal, S25.7 billion state)

The argument for taxing drugs and reducing  the costs of enforcement and incarceration is that the fiscal burden far outweighs the benefits. A California ballot measure to legalize personal marijuana use floundered in the 2010 election but ignited nationwide buzz about the possible budgetary relief of decriminalizing some drugs.

Harvard economist Jeffrey Miron calculates that state and federal governments could generate $46.7 billion a year alone by legalizing and taxing cocaine, heroin and marijuana. About 1.8 million people are arrested for drug-related crimes annually, accounting for nearly 13 percent of all arrests, at a cost of $40.3 billion 

“We generate lots of corruption and violence, and by extension law-enforcement costs, because underground markets don’t lobby their congressmen in standard ways, and instead resolve issues with violence,” Miron said.  “The revenue affects would sort of act as the fiscal icing on the cake of ending prohibition.”