Higher Alcohol Taxes Unlikely in 2006

Published October 1, 2005

After mostly unsuccessful efforts to boost state taxes on beer and other alcoholic beverages in 2005, advocates for higher taxes are likely to face another dry year in 2006.

Evidence is mounting that higher alcohol taxes are not effective in reducing underage drinking or driving while intoxicated, creating thorny problems for tax-hike advocates.

Tax Hikes No Deterrent

Even advocates of alcohol tax increases have begun to doubt their impact on drunk drivers. Researcher Joel Grube of the Prevention Research Center, run by the pro-tax Pacific Institute for Research and Evaluation, noted in the September 2004 issue of Traffic Injury Prevention that recent research “… has found no evidence for the effects of taxation and price on alcohol consumption and alcohol-related traffic fatalities, either among youth or in the general population.”

California provides an example. In 1991, beer taxes increased nationally by $9 a barrel at the federal level, while California tacked on an additional $6 per barrel tax. According to data from the California Student Substance Abuse Survey, alcohol use among underage teens increased after the tax hike.

Youths Flush with Money

Research on teens’ spending patterns would seem to confirm that higher taxes are unlikely to impact alcohol use.

According to the consumer research firm Mintel International Group, “Teens aged 12-17 … are a formidable consumer market with considerable spending power. Mintel expects teen spending to reach $124 billion in 2004.” Young people age 18 to 20 have tens of billions of dollars in spending power, much of it discretionary.

Alcohol taxes also appear to have a negligible impact on how many people drive while intoxicated.

For example, Wyoming has gone 70 years without raising its alcohol tax, and it also has the lowest tax levels in the country on beer, 4.5 cents per case. Alaska, by contrast, has the highest beer tax in the country, $2.41 per case. In 2003, 28.9 percent of traffic fatalities in Alaska involved alcohol, while 28 percent of traffic fatalities in Wyoming were alcohol-related.

Taxes Hit Poor Hardest

The regressive nature of alcohol taxes is well understood in the public policy community. The Center on Budget & Policy Priorities, a liberal think tank in Washington, DC, noted in a 1997 report by Nicholas Johnson and Iris Lav, “Excise tax increases may be enacted for socially desirable reasons other than raising revenues. … They nevertheless place a disproportionate burden on lower-income households.”

A more recent report on alcohol taxes, prepared in 2003 by Patrick Fleenor for the nonpartisan Tax Foundation, also concluded alcohol taxes impose a heavier burden on low-income consumers.

“Under current law individuals making less than $20,000 per year face federal alcohol tax burdens that are more than 18 times higher than individuals making in excess of $200,000,” Fleenor wrote.

A January 2005 research document by the Minnesota House of Representatives concurred: “Alcohol taxes are regressive; they constitute a higher share of income for lower-income families and individuals, on average. … They are less regressive than the tobacco taxes, but are nevertheless more regressive than the general sales tax.”

Hikes Face Fierce Fight

Despite these hurdles, many advocates of higher taxes on alcohol vow to press on. The Center for Science in the Public Interest, a liberal advocacy group in Washington, DC, is pressing for higher taxes and has identified on its Web site 12 target states: Connecticut, Indiana, Kentucky, Louisiana, Minnesota, Missouri, North Dakota, Ohio, South Dakota, Texas, Washington, and Wisconsin.

“I doubt they’ll have any more luck in 2006 than they had in 2005,” said Brian Dumas, vice president of Victory Enterprises, a political consulting firm in Davenport, Iowa.

“State revenues are surging across the country,” Dumas continued, “and it’s increasingly evident that alcohol tax hikes don’t help much in reducing underage drinking or driving while intoxicated. Furthermore, politicians in both parties understand that raising taxes on hard-working families is not popular. I can’t imagine that it’s worth any legislator’s time to fight this type of losing battle.”

Sean Parnell ([email protected]) is vice president – external affairs for The Heartland Institute.

For more information …

The Tax Foundation’s March 2004 report by Patrick Fleenor, “A Critique of the National Research Council and Institute of Medicine’s Recommendations to Raise Alcohol Excises to Curb Underage Drinking,” is available online at http://www.taxfoundation.org/files/e9f3485dabfce0abc451e68b17dee1a8.pdf.