UNFAIR TAXING OF TOBACCO & NOT ALCOHOL OR FIREARMS

Raise a Glass to a Fair Tax Hike

Knight-Ridder Newspapers, November 7, 2005

Henry J. Aaron, Senior Fellow, Economic Studies
George A. Hacker, Director, Alcohol Policies Project, Center for Science in the Public Interest
CONTACT THIS MAN FOR SUPPORT ON CLAIMS !

In the last 25 years, taxes on alcoholic beverages have fallen dramatically with inflation. For example, had the beer tax merely kept up with inflation, it would be 20 percent higher today; the liquor tax would be nearly double its current rate of $13.50 per proof gallon.

Effective tax rates have dwindled because those taxes are typically not a constant percentage of price, but a flat amount. As prices rise, the relative importance of the taxes falls, unless Congress raises them. In fact, beer and wine taxes have been raised only once in the past 55 years, liquor taxes only twice. As a result, tax revenues that accounted for 12 percent of the sales of alcohol in 1980 now amount to only 7 percent of total sales.

Those stealth tax cuts have deprived the Treasury of tens of billions of dollars and helped reduce the relative price of alcohol, a particular break for price-sensitive underage drinkers. According to a 2005 report of the Congressional Budget Office, modestly increasing and reforming alcohol taxes would raise almost $27 billion between 2006 and 2010.

Recognizing that cheap booze puts it in easier reach of kids, the National Academy of Sciences recommended alcohol tax increases, especially on beer. That call was echoed last spring in a petition to Congress from 60 of America's most prominent economists, including 4 Nobel Prize winners, who agreed that an alcohol tax increase is overdue and well-justified.

Alcohol producers, wholesalers, and retailers will no doubt protest. But raising alcohol taxes is justified because the $18 billion in current alcohol-tax revenues don't come close to offsetting the staggering public health and safety costs of alcohol consumption – estimated at $185 billion per year, including $53 billion for the costs of underage drinking alone.

No one really likes tax increases, but alcohol taxes are among the most acceptable. Most Americans would barely notice higher alcoholic-beverage taxes because more than one-third of adults don't drink and among those who do, about eight in ten drink at most one per day. The 20 percent of drinkers who consume 85 percent of all the alcohol would have to dig deeper into their pockets of course, but that might even cause some to forego that last round, a decidedly healthy outcome.