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Prohibition 2.0: Marijuana Mimics Alcohol

Stocks in this article: WAG

NEW YORK (TheStreet) -- History doesn't repeat itself but it does rhyme, said Mark Twain. When you compare the prohibition of alcohol to the prohibition of marijuana, the similarities are striking.

Tax Windfall

Before alcohol could be prohibited, the temperance society knew it had to address the tax issue. Alcohol tax generated 40% of the government's budget and that was the "Drys" biggest challenge -- replace the alcohol revenue. The 16th amendment created the federal income tax in 1913 and that was the first step to changing the revenue stream for the government. So you can thank the tee totalers for the income tax we have today. Income taxes far surpassed the liquor taxes and so the road became clear to pass a prohibition against alcohol manufacture and sales. In 1919, the 18th Amendment or "Prohibition" was passed.

Everything was good during the roaring twenties, but then the Depression hit and tax revenue began falling. By 1933, tax revenue had dropped 60% from 1930. The 21st amendment in 1933 repealed Prohibition because the government needed the alcohol taxes. Wealthy patrons like Pierre DuPont and Andrew Mellon backed the repeal of prohibition in hopes that new alcohol tax revenue would ward off higher income taxes. Instead they were hit with a double whammy: Their booze was taxed and income tax percentages rose even higher. These gentlemen also figure into marijuana prohibition, but more on that later.

Raising taxes are the easiest way to bring money into a state's budget. Sin taxes have always been the best choice, but with fewer people are smoking, tobacco taxes aren't as effective as they once were. So, why not tax wacky tabacky?

As Colorado reports the tax revenue from marijuana, many states are green with envy. In January, Colorado received $2 million in tax dollars from recreational marijuana and $3.5 million in pot related taxes. Summer is expected to be even bigger, with tourists arriving to be able smoke pot legally. At this rate they could reap $40 million for the year. The initial money is to be spent for school construction; after that the state has yet to decide. It's no wonder cash-starved states are eyeing the rollback of marijuana prohibition. Washington is the next state to legalize recreational marijuana, with the first retail licenses to be issued no later than the first week of July.

Excessive Punishment

Another similarity between Prohibition and the marijuana ban is the excessive punishments under the law. Alcohol prohibition resulted in crowded courts with many low level people being thrown in jail. The courts were so tied up with booze lawbreakers that plea bargaining as we know it today was created to deal with the backed up courts. Overzealous agents killed people that possessed alcohol in their own homes causing many to wonder if things had gone too far. Wealthy people could drink and remain untouched, but poor people were thrown in jail.

It is well known that the number of people in prison due to marijuana busts is higher than any other drug. It primarily affects the poor and minorities, even though a larger percentage of marijuana smokers tend to be white. The courts are clogged and cities that consider legalizing even medicinal marijuana cite the money they will save in criminal costs. Colorado and Washington both expect to save over $20 million in court costs.

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