Wednesday, August 01, 2007

Interesting Theory

George Mason University Professor Don Boudreaux (of Cafe Hayek blog fame) has articlulated an interesting theory for both the beginning and end of Prohibition, via the Pittsburgh Tribune-Review.

The short story is that it effected Federal tax revenue. How? Up until 1913, when the Federal income tax was passed, a sizable (around 1/3) of Federal tax revenue was generated by liquor taxes. With the passage of the income tax, that revenue wasn't as critical to the operation of the government, so Prohibition was more palatable to elected officials than previously. The new income tax raised as much as nine times the revenue that taxes on liquor.

However, when Federal Income tax revenues cratered dramatically after the 1929 Crash and the Great Depression was triggered, suddenly there was an near overwhelming by officials in government need to raise additional revenue. Income tax revenue dropped by 60% between 1930 and 1933.

Very interesting research, and one that does not bode well for certain parties interested in legalizing other substances unless a massive economic distruption is in the cards in the near future.

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