Revenue Losses to State and Federal Government From Opioid-related Employment Reductions

Objective: The main purpose of this study was to estimate the tax revenue lost by state and federal governments as a result of adverse labor market outcomes attributable to opioid misuse. Methods: We pair existing, plausibly causal estimates of the effect of opioid misuse on the decline in the labor force from 2000 to 2016 with a variety of data sources to compute tax revenues lost by state and federal governments using the online TAXSIM calculator. Results: We find that between 2000 and 2016, opioid misuse cost state governments $11.8 billion, including $1.7 billion in lost sales tax revenue and $10.1 billion in lost income tax revenue. In addition, the federal government lost $26.0 billion in income tax revenue. Conclusions: By omitting lost tax revenue due to labor force exits, prior studies have missed an important component of opioid-related costs borne by state and federal governments. Policy Implications: As more states and the federal government contemplate litigation for opioid-related damages, lost tax revenue represents an important cost that could be recouped and allocated to opioid prevention and treatment programs.