Maine lawmakers, hoping to reduce suicides and domestic violence, introduced legislation that would increase the state’s excise tax on malt liquor, wine, and spirits.
If passed into law, Legislative Document 1070 would raise the excise tax on malt liquor from $0.35 to $0.50 per gallon. The tax on low-alcohol spirits and fortified wine would increase from $1.24 to $1.50 per gallon. Taxes on wine (other than sparkling wine) would increase from $0.60 per gallon to $1 per gallon. The taxes on sparkling wine would increase from $1.24 to $1.50 a gallon, and the tax on hard cider would rise from $0.35 to $0.50 per gallon. The state’s excise tax on distilled spirits would also increase, from $1.25 to $1.50 per proof gallon.
Duties on alcohol are “sin” taxes. They should not be used by policymakers to control people’s behavior because they are regressive and unreliable revenue sources. Moreover, there is little evidence that an increased tax on alcohol would reduce the number of suicides and domestic violence incidents in Maine.
Because alcohol taxes are levied by volume, tax rates are “highest on cheaper products.” Although higher-income persons tend to drink more than lower-income persons, they tend to purchase more expensive alcohol and are less burdened by unexpected tax increases.
Lower-income people tend to spend more of their income on alcohol taxes. One study found people in the top income quintile spend 0.09 percent of their income on state and federal alcohol taxes, while individuals in the bottom-quintile spend 0.16 percent of their income on alcohol taxes. Lower-income persons are spending “a 78% larger share of their income on alcohol taxes than people in the top quintile.”
Although the legislation is intended to reduce the number of suicides and incidents of domestic violence, there is no evidence increasing excise taxes on alcohol produce these effects. For example, Alaska ranks second in the nation for suicides, at a rate of 27 suicides per 100,000 people. Alaska’s spirits tax is $12.80 per gallon and $2.50 per gallon of wine, ranking eighth and second in the nation, respectively. These two taxes in Alaska are more than twice the current tax on such products in Maine.
Massachusetts, New Jersey, and New York have the lowest suicide rates. These states also have lower, or, in some cases, slightly increased taxes on wines and spirits, but there is large tax parity between these states’ tax rates and Maine’s.
An excise tax on alcohol seems to have little consequence on domestic violence rates. For example, in 2012, Montana’s reported incidents of “Domestic Violence Homicides of Women” were 5.97 per 1 million people, ranking second nationally. Montana has an excise tax rate on spirits of $9.78 per gallon, 12th highest in the nation.
Moreover, Maine is already losing alcohol sales revenue to New Hampshire. In 2018, liquor businesses promoted “No Taxation on our Libations!,” offering discounts on alcohol to out-of-state purchasers. In 2017, “Maine residents made up 7 percent of New Hampshire’s outlet liquor sales,” amounting to $49 million in annual gross sales.
Lawmakers should not rely on sin taxes to influence behavior. Alcohol taxes have little effect on rates of suicide or domestic violence, and they disproportionately impact lower-income persons.
The following articles provide more information about sin taxes.
Research & Commentary: States Shouldn’t Depend on Unreliable ‘Sin’ Taxes
Matthew Glans, senior policy analyst at The Heartland Institute, examines a report in Governing that found states have become increasingly reliant on “sin” taxes. Glans finds that most revenue estimates for new and increased revenues are never met and sin taxes have a significant detrimental effect on local small businesses.
Ten Principles of State Fiscal Policy
This Heartland Institute booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from “Above all else: Keep taxes low,” to “Protect state employees from politics.”
The Wages of Sin Taxes: The True Cost of Taxing Alcohol, Tobacco, and Other ‘Vices’
In this report by Christopher Snowdon of the Adam Smith Institute, the author outlines the case against sin taxes on cigarettes and alcohol. The report argues that taxes on commodities believed to be harmful to a person’s health or society are ineffective in reducing consumption and are not necessary for recouping lost revenue. Sin taxes are highly regressive and often force the poor to pay for the government’s mishandling of public finances.
Sin Taxes: Size, Growth, and Creation of the Sindustry
Adam Hoffer of the Mercatus Center explores three criticisms of sin taxes. First, taxing selected goods for general budget revenue contradicts the standard Pigovian social welfare argument. Second, the economic burden of sin taxes falls disproportionately on low-income households. Third, the expanding number of goods being taxed in this way results in unproductive and preventive lobbying.
States Profiting the Most from Sin
Using data from the Census Bureau and the American Gaming Association, Michael B. Sauter, Alexander E. M. Hess, and Thomas C. Frohlich of 24/7 Wall St. identify the states where the largest percentage of revenue came in the form of proceeds from alcohol, tobacco, and casino taxes, lotteries, and state-regulated liquor stores.
Richard Williams and Katelyn Christ examine several myths about sin taxes in this Mercatus Center paper. “Recently, however, the arguments for imposing new excise taxes and increasing existing ones have reemerged across party lines and have spawned several myths about the efficacy of sin taxation,” they wrote.
Sin Taxes: When the State Becomes the Sinner
Andrew J. Haile uses the Master Settlement Agreement between the states and major tobacco companies to illustrate the moral hazard created when states become dependent on sin tax revenues. Haile also draws out lessons from states’ experiences with taxing tobacco products to identify problems to consider as state legislatures weigh whether to enact new sin taxes.
The Political Economy of Excise Taxation: Some Ethical and Legal Issues
Excise taxes are used not only to raise revenue but also to alter or punish behavior. In many cases, excise taxes can be called “sin” taxes, because they punish people for politically incorrect behavior, such as smoking or consuming alcoholic beverages. In this article, Robert W. McGee examines the nonrevenue uses of excise taxes and analyzes their propriety from the perspectives of economics, law, and ethics.
The Economics of Sin Taxes
James Sadowsky considers sin taxes, how they affect the products they are imposed on, and the public’s recent backlash against such taxes.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, Heartland’s Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Arianna Wilkerson, a state government relations manager at The Heartland Institute, at [email protected] or 312/377-4000.