Nebraska Considers Massive Alcoholic-Beverage Tax Increases

Published March 26, 2019

The Nebraska Legislature is considering a bill that would fund property tax relief with huge increases in excises tax on beer, wine, and spirits, a $1.50 increase in the cigarette tax, and hikes in other taxes.

The bill would increase the tax on beer by 345 percent, on wine by 1,032 percent, and on distilled spirits by 227 percent. It would hike the tax on wines produced in the state by 4,267 percent.

L.B. 497 would raise the state’s tax on beer from 31 cents per gallon to $1.38 per gallon, on wine from 31 cents per gallon to $3.51 per gallon, and on liquor from $3.75 per gallon to $12.28 per gallon. Wines produced by Nebraska farm wineries would be taxed at a slightly lower rate, increasing from 6 cents per gallon to $2.62.

The bill would generate $523 million to fund increased state aid to local districts in order to reduce property tax rates, state the bill’s sponsors. The alcohol tax hikes would raise an estimated $121 million annually.

The bill, one of several competing property tax relief proposals, is sponsored by 12 state senators in the 49-member unicameral, or one-house, Nebraska Legislature, and was introduced in January.

Craft Beer Boom

Local craft breweries that produce small volumes of beer are growing in popularity nationally and in Nebraska, says Jarrett Dieterle, director of commercial freedom policy at the R Street Institute.

“The craft beverage industry is booming cross the country,” said Dieterle. “In 2017, craft breweries created the second-most manufacturing jobs of any industry in America.

“Nebraska is no exception,” Dieterle said. “Nebraska has 3.5 breweries per 100,000 people, which puts it in the top 15 states for breweries per capita. Overall, breweries had a $465 million economic impact in the state.”

The craft beer industry will shrink if Nebraska moves forward with this tax hike, says Dieterle.

“Research has demonstrated that increasing taxes on products like beer can lead to a decrease in brewpubs and breweries in a state,” said Dieterle.

Says Sin Taxes Are Unreliable

States can’t count on the expected revenue from sin taxes meant to discourage use of such products, says Matthew Glans, a senior policy analyst at The Heartland Institute, which publishes Budget & Tax News.

“You can’t rely on sin taxes to be consistent over time,” said Glans. “The revenue will decrease over time, which is essentially the goal of the tax.

“States should avoid relying on these taxes for budgetary obligations, as they are unreliable,” Glans said.

‘Makes Little Sense’

Governments shouldn’t focus on a specific product category to increase revenue, says Dieterle.

“Generally, state and local governments fund their operations through a combination of property, income, and sales taxes,” said Dieterle. “Singling out the alcohol industry to bear the brunt of revenue-generation in the state makes little sense,” Dieterle said.

Crossing Lines

Hiking taxes on alcoholic beverages will lead to illegal importing from other states, says Edwin Hudgins, research director at The Heartland Institute.

“Nebraska’s alcohol tax hike will likely not result in the expected revenue, because of both the black market and smuggling,” said Hudgins.

“[The] road between Omaha and Iowa will get a lot of use,” Hudgins said. “Nebraska policymakers might want to look to the Washington, D.C., suburban Maryland, and Virginia area. Citizens regularly cross state lines to take advantage of lower costs between jurisdictions.”

‘Will Harm the Less Prosperous’

Sin taxes are regressive, putting a greater burden on lower-income people, says Hudgins.

“This [tax] take will harm the less-prosperous citizens,” said Hudgins. “After a hard day’s work, a relaxing beer will become a luxury.”

Lindsey Stroud ([email protected]) is state government relations manager at The Heartland Institute.