Would legalizing prostitution help the US economy?

The fiscal cliff dilemma is prompting some novel ideas on how to reduce the federal deficit -- including the highly questionable suggestion of turning Uncle Sam into a pimp.

Enter Dennis Hof, owner of Nevada's Moonlight Bunny Ranch brothel. Hof has proselytized for years about decriminalizing prostitution outside his state, and argues that a legal and taxed sex trade could do economic wonders.

"The federal government receives $6 billion a year now, off of liquor," he said in an interview with the Huffington Post. "The prostitution industry in America is about an $18 billion business, and none of that money goes into the federal coffers or goes to pay taxes."

With his plan, Hof says, the government would gain about $6 billion in federal income tax "from the girls" -- plus nearly $2 billion more in licensing fees.

According to the Christian Post, the international sex industry is a $30 billion a year business -- with hundreds of thousands of women, men and children coerced into a brutal and degrading life as prostitutes. 

Hof says decriminalizing prostitution takes money out of the hands of criminals, eliminates sex trafficking and combats the spread of sexually transmitted diseases. "You can't stop it," Hof told the Huffington Post. "Prohibition doesn't work and legalization can solve a lot of our problems."

But even if you put aside the obvious moral issues surrounding a decriminalized prostitution industry, there are some doubts whether it would actually reduce crime.

Some advocates look at countries like the Netherlands -- where prostitution is legal. It's even an active and publicized part of the tourist trade in Amsterdam, bringing in about $100 million a year.  But Amsterdam officials say legalization did not end crime, human trafficking, money laundering or drug abuse in the city's Red Light District.

"While legalization was supposed to turn prostitutes into self-employed taxpayers who did not need pimps for protection," Reuters reported in 2007, "the city said the industry is still dominated by criminals attracted by the 370 Euros ($484 U.S.) each woman can earn a day."

And a new academic report, looking at data from 116 countries, found a higher instance of human trafficking in countries where prostitution is legal.

"Our research suggests that in countries where prostitution is legalized, there is such a significant expansion of the prostitution market that the end result is larger reported inflows of human trafficking," said Eric Neumayer, Professor of Environment and Development at the London School of Economics and Political Science, and co-author of the report.

"While legalizing prostitution can have positive effects on the working conditions of those legally employed in the industry, it also appears to boost the market for this fast-growing global criminal industry."

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