Maryland Raises Alcohol Tax 50 Percent; Opponents Fear Job Losses

Published April 25, 2011

Maryland lawmakers have voted to impose a 50 percent increase in the state’s tax on alcoholic beverages, leading health advocates to cheer and sellers and buyers of alcoholic drinks to boo.

If signed by Gov. Martin O’Malley (D), the state tax on liquor, beer, and wine will jump from 6 percent to 9 percent, effective July 1. The state expects to collect about $85 million annually as a result of the tax increase.

The move came with less than two hours left in the legislative session, no public hearings, and about 15 minutes of debate, said Delegate Mike McDermott (R-Pocomoke City), who opposed the tax increase.

Last-Minute Surprise
McDermott said the tax increase was barely mentioned until, on the last day of the session in April, “they sprung the tax on us and pushed it through. A lot of people were upset about the process. They cut off debate after about 15 minutes and allowed no public hearings. It outraged me so much because that process tears at the liberty we are supposed to uphold.”

The fiscal note attached to the legislation acknowledged the tax increase would cause job losses, McDermott said. He said the effects would be worst near the state borders, where it’s easy for people to cross into a neighboring state to purchase alcohol.

Health Advocates’ Support
A coalition of health advocates and others looking for more tax money for the state supported the legislation.

“There is a huge literature that shows even small changes can have positive downstream effects on health and the economy,” said David Jernigan, associate professor at the Johns Hopkins Bloomberg School of Public Health in Baltimore, Maryland. “In terms of price, laws of supply and demand apply to a certain extent. If we raise prices, people will drink somewhat less, whether the increase is from taxes or other means.”

Jernigan said it’s important to note these are excise taxes, meaning they are based on the volume of alcohol sold, rather than on price. That means price inflation does not affect the tax.

“The winners are the disability community, public schools, and the people of Maryland,” said Del. Jolene Ivey of Prince George’s County in a statement to the Baltimore Business Journal.

Little Money for Health
McDermott said health concerns were a major argument for the tax increase, but little of the money is going to be used to help disabled persons or fund other health-related causes. Most of the money is instead going to the state’s biggest cities and counties, mainly for school construction.

Of $47.5 million of first-year revenue designated for school construction, the City of Baltimore and Montgomery and Prince George’s Counties would each receive $9 million. Meanwhile, McDermott’s area, which includes the resort community of Ocean City, would receive $150,000.

“Ocean City is the second-largest city in Maryland for a couple of months a year” because of tourism, McDermott said. “This tax increase is going to kill them.”

Cross-Border Shopping
“In Maryland, an issue we deal with perhaps more than some other sates is this: We have 26 county jurisdictions, and 18 of them border other states. To the north of my county is Delaware. To the south is Virginia. Delaware and Virginia have cut corporate tax rates and done other things to make themselves more business-friendly. With this tax increase, we’re going to make their business model work even better than it does now.”

McDermott said recent history backs him up. Revenues from a “millionaire’s tax” surcharge the state imposed three years ago have dropped off.

“We have fewer millionaires now. One [county] jurisdiction has lost 800 folks who transferred residency [to a second out-of-state home] because of that tax increase, and all their income went with them,” he said.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.