Drinks Tax Could Target Penn State Students

Published March 1, 2009

Officials in State College, Pennsylvania, home of Penn State University, are considering adopting a 10 percent tax on alcoholic drinks purchased at bars and restaurants.

Proponents of the tax want to target the town’s students, whom they say cost the borough money. State College Borough President Elizabeth Goreham has said students typically “don’t pay very much earned income tax” but cost the borough in police services associated with alcohol abuse.

Goreham argues a tax on drinks purchased at bars and restaurants would ensure students share in the burden of funding police services. She calls it a “dream tax” for the borough, which is trying to balance its $17 million 2009 budget.

Analysts Critical

Opponents say levying a tax on alcohol to pay for police services is unfair.

Gerald Prante, senior economist at the Washington, DC-based Tax Foundation, says taxing alcohol does not allocate the tax responsibility toward those who create the greatest need for police services.

“Alcohol consumption is not the best measure for how much a student costs State College in extra police coverage,” Prante said. He points out many students do not commit crimes when they drink, and that many people who go out and drink in the town are not students.

Alcohol Content, Not Price

Prante also notes an ad valorem tax—a tax based on the sale price—discriminates against higher-quality drinks that have no effect on the need for government services.

“Drinking cheap whiskey isn’t any safer than drinking expensive whiskey. If you wanted students to bear the costs associated with alcohol abuse, then the tax would be based on alcohol content, not price,” Prante said.

A better way to make criminals pay for police services, Prante said, “would be to increase fines and penalties for alcohol-related offenses.”

Burden on Bars, Patrons

State College is not the first Pennsylvania locality to consider such a tax.

Allegheny County, which includes Pittsburgh and the surrounding areas, recently passed a similar tax on alcohol to help fill a $30 million budget deficit related to public transportation.

The 10 percent poured-drink tax, which took effect in Allegheny County at the beginning of 2008, met strong opposition from local restaurant owners, taxpayers, and associations such as Friends Against Counterproductive Taxation (FACT). All say the tax places an unfair burden on businesses and patrons.

The Allegheny County council reduced the tax to 7 percent in December 2008. Opponents of the tax are waiting to see whether the Pennsylvania Supreme Court will allow a voter referendum giving the public the choice of reducing the tax to a negligible 0.5 percent. State law allows for a vote to reduce the tax but not to eliminate it.

Mark Robyn ([email protected]) is an analyst at the Tax Foundation, a tax policy research organization in Washington, DC.