Thursday, December 11, 2008

The Economy Must Be Really Bad If We Are Talking About Alcohol

By Marc Korman.

In some of the darkest days of the Great Depression, our legislators were not passing jobs programs or crafting fiscal stimulus packages, but were busy repealing the 18th Amendment to the Constitution, prohibition. This time, instead of increasing access to alcohol to get us through our economic malaise, plans are afoot to make it harder to buy a drink. The Maryland Citizens’ Health Initiative has unveiled a new plan to help insure all Marylanders, partly paid for by an increase in alcohol taxes.

The proposal is described this way:

Alcohol Tax: We propose to increase the state excise tax on alcohol in FY 2010. The state taxes on beer and wine have not increased since 1972, and the state tax on spirits has not increased since 1955. Maryland currently has the eighth-lowest tax in the nation for beer, the thirteenth-lowest tax for wine, and the third-lowest tax for spirits. We therefore propose a “Dime a Drink” increase in the state excise tax to $1.16 per gallon for beer, $2.96 per gallon for wine, and $10.03 per gallon for spirits. In addition to the revenue raised, an increase in the alcohol tax has public health benefits from the reduction of binge drinking, particularly among youths. We estimate total state revenue from the increase in the alcohol tax will be $1,015.0 million over the five-year budget window, with revenue of $197.0 in 2010. This revenue estimate incorporates the likely reduction in alcohol consumption caused by the higher net prices.
Maryland’s current tax rates on alcohol are $.09 per gallon for beer, $.40 per gallon for wine, and $1.50 per gallon of spirits, so the initiative is proposing some pretty hefty hikes. There are also federal taxes on alcohol, so it is not just the state taking a sip out of your beer.

Using so called sin taxes to pay for healthcare is not a new concept. In Maryland, an increase in the tobacco tax by $1.00 a pack (for a total of $2.00 a pack) during the 2007 Special Session helped pay for an expansion of the state Medicaid program to cover 100,000 of the state’s 800,000 uninsured.

Still, these proposed alcohol tax hikes are a bit extreme and unrealistic. These rates would make Maryland the highest taxer in the nation on beer and wine, and the eighth highest for spirits. Problematic for Montgomery County, where prices can already be a little higher due to direct control of alcohol sales, the District of Columbia would have significantly lower rates. I already know many people who travel out of Maryland for alcohol, and this could increase the trend. According to the Tax Foundation’s compilation of state taxes, the surrounding states alcohol tax rates are:

Beer/gallon Wine/gallon Spirits/gallon

DC $.09 $.30 $1.50 DE $.16 $.97 $3.75 MD $.09 $.40 $1.50
VA $.256 $1.51 $14.54
The proposal is also significantly more than even legislative leaders on this issue have been willing to promote. Here are the 2008 legislation session alcohol tax proposals:

Beer/gallon Wine/gallon Spirits/gallon
Gutierrez $.25 $1.00 $3.50

Bronrott/ $.27 $1.20 $4.50

Forehand $.54 $1.20 $4.50

I have been a proponent of the County trying to get increased revenue from alcohol sales. The County Executive should also rethink his opposition to opening County liquor stores on Sundays. One commenter on MPW even offered the suggestion that stores be open on Sunday instead of a weekday to keep operating costs roughly the same. Reforms like these, coupled with a modest increase in the alcohol tax, would make good policy both fiscally and socially.

Of course, given the perceived tax revolt, it is unlikely the General Assembly will raise taxes before the 2010 election. If they do, the funding will not go to new programs but will help balance the budget.