Alcohol Taxes: A Sober Reflection

Common Ground Solutions Wide Angle Alcohol Tax A Sober ReflectionCongress hasn’t raised federal taxes on alcohol since the early 1990s, one reason why beer, wine, and spirits are so cheap in the U.S. Would higher taxes make Americans healthier and safer?

January 5, 2020

The U.S. Centers for Disease Control estimate that between 2006 and 2010, excessive alcohol use led to 88,000 deaths and 2.5 million years of potential life lost each year. Excessive drinking was behind one in ten deaths among working-age adults. As a factor in liver disease, car crashes, and violence, alcohol use is a serious and under-recognized public health problem.

Many factors contribute to excessive alcohol use, but experts in public health and economics are zeroing in on one: low taxes. Federal taxes on alcohol have not kept pace with inflation, which helps keep drinking cheap. If alcohol cost more, the argument goes, people would consume less of it.

So, do low taxes contribute to excessive drinking? And should we raise taxes to compensate for the harm alcohol does in our communities? Let’s look at the arguments on both sides.

Raise a Glass, Raise the Tax
Deaths from alcohol are at an all-time high, and the burden is even higher when you include drunk driving incidents, alcohol-related homicides, and other injuries. Federal alcohol taxes, on the other hand, have been low for years, helping to make its use more affordable. Congress established high alcohol taxes after Prohibition, but since 1951 has only increased the tax on liquor twice and on beer and wine once. Accounting for inflation, the taxes are actually lower now than a half century ago. Since 1991, federal alcohol taxes have lost more than 40 percent of their value.

A large body of evidence suggests that increasing taxes on alcohol would decrease consumption. Basic economics explains why: for certain products, when the price drops, people consume more of them. Without a doubt, alcohol taxation benefits public health and safety, says public policy professor Philip J. Cook. In his 2007 book, Paying the Tab, Cook writes that “Higher prices are conducive to lower rates of underage drinking, traffic fatalities, and sexually transmitted disease.”

A review of available research published in the American Journal of Public Health in 2010 concluded that “doubling the alcohol tax would reduce alcohol-related mortality by an average of 35 percent, traffic crash deaths by 11 percent, sexually transmitted disease by 6 percent, violence by 2 percent, and crime by 1.4 percent.”

Whether you imbibe or not, says drug policy expert Mark Kleiman, cheap alcohol affects us all. In 2011, Kleiman wrote that “the average price of a standard drink for home consumption is about a dollar – of which about a dime goes to pay federal taxes and a nickel is spent on state tax…If we add up all the damage done as a result of drinking, it averages out to about a dollar a drink. The difference, in effect, is a subsidy to heavy drinkers – and the industry that serves them – borne by moderate drinkers and non-drinkers. Everyone’s health insurance includes the cost of treating the victims of their own drinking, and the victims of other people’s drinking.”

An Idea on the Rocks
Not everyone sees the benefit of a higher alcohol tax. Nicole Kaeding of the National Taxpayers Union Foundation writes that an alcohol tax does not target the most problematic consumers: binge drinkers. Close to 80 percent of the costs of alcohol consumption come from binge drinkers, she says, and they are less likely to cut back than casual drinkers are. While the tax may raise money, it won’t necessarily decrease drinking.

A 2017 analysis by the Tax Policy Center suggests this argument may have merit. Researchers looked at two alcohol tax increases in Illinois, one in 1999 and one in 2009, and found that alcohol-related fatal car crashes did not decline either time.

Alcohol producers say their economic contributions are reason enough to keep taxes low. The Brewers Association, which represents small, independent breweries, says its members employ more than 135,000 people, generate more than $3 billion in wages and benefits, and pay more than $2.3 billion in taxes. A tax increase on their product, they argue, would cause those numbers to stagnate or decline. In 2017, lawmakers agreed when they extended a tax cut for craft beer, wine, and spirits that had been scheduled to sunset at the end of 2019.

Public Opinion
Although opinion polls on raising the alcohol tax are rare, there is some evidence that voters would support such a measure. An interactive online survey by the University of Maryland’s Program for Public Consultation, in partnership with Voice of the People, found that bipartisan majorities of respondents favored increasing the alcohol tax to cut the federal deficit. Even with public support, the alcohol industry spent years fighting off tax increases around the country and shows no sign of stopping.

Learn More

The First Modern Drug: Cheap gin ravaged London drinkers in the 1700s, prompting Parliament to pass eight separate laws regulating it over 22 years. Sure enough, Londoners figured out how to buy and sell it anyway – via The New Yorker

Revenue Raiser: Choose a hypothetical alcohol tax increase on beer, wine, or spirits to find out how much money your state could raise – via Alcohol Justice

Prohibition’s Legacy: Daniel Okrent’s fascinating history of Prohibition offers rich context for the role alcohol plays in our culture and politics – via Last Call: The Rise and Fall of Prohibition

Crime Spike: Research by the National Bureau of Economic Research found that Americans are more likely to become crime victims when they turn 21 and can drink – and it’s probably not a coincidence – via Marketwatch

Car Accidents: In Maryland, a study found that car crashes in which a people were killed or injured dropped six percent annually after the state raised its sales tax on alcohol – via The Baltimore Sun

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This article originally appeared in the January 5, 2020 issue of Wide Angle, our regular newsletter designed, we hope, to inform rather than inflame. Each edition brings you original articles by Common Ground Solutions, a quiz, and a round-up of news items — from across the political spectrum — that we think are worth reading. We make a special effort to cover good work being done to bridge political divides, and to offer constructive information on ways our readers can engage in the political process and make a difference on issues that matter to them.

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