Higher Tax on Alcoholic Beverages Would Reduce Deficit, Other Woes

In a year when tax reform is on the mind of virtually every public official in the United States and the federal deficit is growing at an astronomical rate, it is fitting once again to reexamine the issue of raising taxes on alcoholic beverages.

For the sake of reform, prominent politicians have offered bold, controversial initiatives, such as the elimination of cherished tax deductions for home mortgage interest and state and local taxes. But few prominent national figures have come forth to champion the cause of raising alcohol taxes, which would be much less damaging to the great majority of taxpayers.

Although Senate Finance Committee Chairman Bob Packwood (R-Ore.) won President Reagan’s support for a draft tax-revision bill that would hike beer and wine taxes, their goals are limited and insufficiently lofty. Their goal is only to assure that a tax-reform bill neither raises nor lowers overall taxes.

Any increase in taxes on alcoholic beverages should have several additional objectives: a reduction in the budget deficit; achievement of greater equality in the taxation of wine, beer and distilled spirits, and greater funding for the prevention and treatment of problems related to alcohol and other drugs.

The President apparently still refuses to see the “alcohol connection� between unconscionably low beer taxes and prices and male minors’ traffic fatalities.

Motor Vehicle Deaths May Drop

Recent research by National Bureau of Economic Research economists Henry Saffer and Michael Grossman shows that a significant increase in excise taxes on beer could result in a 55% reduction in motor vehicle deaths for the highest risk group, 15- to 20-year-old males.

The simulated positive effect of appropriate alcohol-tax policies was nearly eight times greater than that shown for hiking the legal drinking age to 21, for example.

Taxes on alcoholic beverages--particularly beer and wine--are incredibly low and can be raised significantly without inflicting undue hardship on anyone, including the producers of spirits of all types, who would simply pass the price increases to the consumer.

Also, it has been decades since beer and wine taxes were raised; an increase is long overdue.

Until Congress passed a tax increase of 19% on distilled spirits, effective Oct. 1, 1984, federal excise taxes on alcoholic beverages had remained unchanged since they were raised in 1951 to help finance the Korean War. In 1951, the taxes on alcohol accounted for more than 5% of federal tax revenue.

Today, these taxes account for less than 1%. If excise taxes on alcohol had been indexed to inflation since 1951, they would have produced an additional $75 billion in tax revenue during that period. As it is today, these taxes produce only $5.4 billion annually.

Expressed in constant dollars, taxes on beer and wine alone are less than one-fourth of what they were in 1933 when Prohibition was repealed. Translated into typical drinks, current rates are 2.7 cents on a 12-ounce can of beer, about half a cent on a glass of wine, and 10 cents on a shot of 80-proof liquor.

While the taxes on distilled spirits are hardly exorbitant, they are nonetheless four times as high as the rate on beer and 17 times as high as the rate on wine.

Equity considerations aside, there are compelling health and safety arguments for raising taxes on alcoholic beverages. All products are price sensitive, as witnessed by falling gasoline consumption in the wake of increasing oil prices in the 1970s. One can logically assume that higher alcohol prices would mean lower consumption, and that’s something we should all care about.

No. 1 Killer of People

We should care because alcohol- and drug-related accidents, suicides, and homicides are the No. 1 killer of people between the ages of 15 and 24 in the United States.

And we should care because the yearly national costs of alcohol misuse in America--manifested in ways such as absenteeism, accidents and crime--are approaching $120 billion and 200,000 deaths, according to the U.S. Office of Technology Assessment. Estimated costs of alcohol misuse to the Los Angeles County government alone surpassed $320 million in 1984.

The principal reasons for these astounding losses are that alcohol is easily available at retail outlets, including service stations and supermarkets, and it is cheap. In fact, it’s not unusual to see a six-pack of beer priced lower than a six-pack of soft drinks.

According to economists at the National Bureau of Economic Research and Duke University, meaningful alcohol taxes will not only reduce aggregate consumption by young people and heavy drinkers, but will also reduce deaths from traffic accidents and cirrhosis of the liver.

The National Alcohol Tax Coalition in Washington estimates that doubling distilled spirits taxes and then equalizing the rates for beer and wine based on alcohol content would result in a 14% drop in consumption, a $16-billion reduction in annual economic losses due to alcohol use, and a $12-billion per year increase in federal revenue.

Additional Revenue Would Be Significant

Such a tax increase is not so onerous as it sounds. It would equate to only a 10-cent hike in a shot of liquor and a 20-cent increase in an individual serving of wine or beer. Additional revenue of $12 billion would be significant for the federal government.

That revenue would equal the combined yearly cost of the federal food-stamp program, the juvenile justice and child-abuse state grant programs, the Administration on Aging, and the National Institute on Alcohol Abuse and Alcoholism.

The tax also would be inherently fair. The 36% of adults who abstain from alcoholic beverages would pay no additional taxes, while the third of the population who are light drinkers would pay on the average of 7 cents a day more, according to the National Alcohol Tax Coalition.

The tax would fall primarily on the 10% of the population, who, as heavy drinkers, account for almost two-thirds of all alcohol consumption in the United States.

California also could benefit from increased taxes on alcoholic beverages. The state’s taxes on wine are the lowest in the nation, and the taxes on beer and distilled spirits rank third from the bottom.

Our tax per gallon on wine is 1 cent, as compared to a national state average of 51 cents; on beer, it is 4 cents, versus 15 cents nationally; and on distilled spirits, it is $2, compared to $2.84. The California wine tax has been in effect since 1937, the beer tax since 1959, and the distilled spirits tax since 1967.

Further, many states have raised their alcohol taxes recently, at least to keep pace with inflation. Had California’s alcohol taxes been indexed to inflation since 1967, when the distilled spirits tax was last raised, the state would have collected an additional $2 billion--an amount equivalent to the revenue raised from all alcohol taxes since then.

Several Proposals

In 1984-85, revenues from alcohol taxes in California were $137 million, or about one-half the amount collected from cigarette taxes.

The Center for Science in the Public Interest, a Washington consumer-interest group which is a strong advocate of higher alcohol taxes, estimates that California could generate revenues of $180 million to $812 million a year by using one of four methods to increase taxes.

These methods are: raising rates to national state averages ($132 million); making beer and wine taxes equivalent to those on distilled spirits, based on their ethanol content ($180 million); doubling spirits rates and assessing equivalent beer and wine taxes ($485 million); or adjusting spirits rates for inflation since 1967 and equalizing beer and wine taxes ($812 million).

In early 1985, Gov. George Deukmejian’s Tax Reform Advisory Commission recommended both a tripling of California’s “taxes imposed upon alcoholic beverages and cigarettes� and “indexing them to the inflation rate since these taxes were last adopted.�

The commission, however, failed to recommend equalizing booze taxes across beverages so that beer and wine would at last begin to pay their fair share. It also failed to suggest that at least some portion be earmarked for the prevention and treatment of alcohol and other drug-related problems.

Obviously, any tax increase on alcoholic beverages would produce needed revenue for the state and federal governments.

And taxes, based on an equalized rate for the ethanol content in all alcoholic beverages, would appear to be the most equitable way to go.

We would also hope that the increased prices of alcoholic beverages brought about by higher taxes would significantly reduce consumption levels in the United States and the problems associated with alcoholization in America.