Axe the Drink Tax!

In 1794, our young country faced an armed rebellion in several states. Threats were made on the lives of government officials, violence broke out, and the insurrection even resulted in a few casualties. The rebellion escalated to the point of President Washington calling for action from the state militias. What caused all of this? Taxes. Specifically, a tax levied on alcohol through the Distilled Spirits Tax Act of 1791, more commonly known as the Whiskey Act. This was a first for a country that just won a revolutionary war against taxation. Today, alcohol remains one of the highest taxed products. While the rebellion was relatively ineffective, people should still question the implementation of these taxes.

A tax collector is tarred and feathered by anti-tax rebels. Source.

There was an economic analysis done of the tax burden on the U.S. beer industry which concluded that federal, state, and local taxes accounted for 40.8% of the total retail price of beer. A major contributor to this tax burden is due to excise taxes specifically targeted at beer. States implement their own excise taxes which vary greatly from $0.02 to $1.29 per gallon. Minnesota falls just outside the top ten with a rate of $0.47 per gallon.

Source

Prohibitionists and social conservatives argue that these taxes are aimed at curbing alcohol abuse, drunk driving, and teen drinking. However, the majority of studies show little to no direct correlation between higher taxes and reduced abuses. While these taxes may influence purchasing patterns of responsible drinkers, the excessive drinkers just find other ways to continue their addiction.

People can't be taxed into responsible behavior. Abusive drinkers are the very last people who will reduce their consumption when the price of alcohol goes up. In response to higher prices, abusers have many ways to maintain their high levels of alcohol intake - they can switch to cheaper brands, switch from on-premise to off-premise consumption, or purchase less expensive forms of alcohol including non-taxed illegally produced beverages. (Source)

These taxes are ineffective at achieving their intended goals. To combat alcohol abuse, policies should be developed that directly target those individuals, not by casting a large net at the general population. Tax policy should not be the vehicle we use to influence behavior.

Efforts have been made to reduce these excise taxes at the federal level through the Small BREW Act and the Fair BEER Act. There is a debate as to which proposal is better for the beer industry, but both aim to reduce the federal excise tax. The current federal rate of taxation is $7 per barrel for the first 60,000 barrels and $18 per barrel there after. The Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act), which was introduced by Minnesota Congressman Erik Paulsen, is supported by the Brewers Association as it only applies to breweries that produce less than 6 million barrels per year. It would reduce the rate of taxation to:

• $3.50 per barrel for the first 60,000
• $16 per barrel for 60,001 to 2 million
• $18 per barrel above 2 million

The Fair Brewers Excise and Economic Relief Act (Fair BEER Act) is supported by the Beer Institute and the National Beer Wholesalers Association who represent the macro-breweries, importers, and suppliers. This proposal applies equally to all brewers and importers regardless of production amounts. It would reduce the rate of taxation to:

• No tax on the first 7,143 barrels
• $3.50 per barrel for 7,144 to 60,000
• $16 per barrel for 60,001 to 2 million
• $18 per barrel above 2 million

The debate about which is better hinges on the impact these tax cuts would have on the deficit, the fact that the macro-breweries are owned by overseas corporations, and the sentiment that the macro-breweries don't need the tax cuts. My preference would be to focus on helping out the small craft brewers, but the principle remains that we shouldn't have these taxes at all so any cut to them is a good thing. I applaud Congressman Paulsen and the other cosponsors and I hope to see this at least get a hearing in the House Ways and Means Committee.

Egészségedre!