UPDATE: Vox is now reporting that an alcohol tax cut was tucked into the Senate tax reform bill. It would reduce federal excise taxes on beer and distilled spirits, with an emphasis on helping small companies. It would also broaden a federal wine tax credit.
If Congress remains serious about revamping the U.S. tax system so that it matches 21st Century realities, why is Capitol Hill ignoring outdated federal taxes on alcoholic beverages?
The excise taxes on beer, wine and spirits have not changed since 1991, which puts them far lower than historical levels, when adjusted for inflation. More importantly, since ‘91 the negative national view of smoking and drinking has transformed. The public health toll of excessive drinking has emerged as a major societal issue – particularly drunken driving – in tandem with tougher approaches toward deterring cigarette smoking.
Yet, our nation’s tax policies toward tobacco products in the past quarter century changed dramatically while the approach toward taxing alcohol has changed not at all.
In fact, the federal tax levied on a 12-ounce beer, a 6-ounce glass of wine or an 8-ounce mixed drink amounts to approximately 5 cents to 27 cents, depending on the alcoholic content of a particular beverage.
At the same time, in the years since ‘91 smoking tobacco emerged as a widely targeted societal health hazard and the resulting impact on taxation has been dramatic. Approximately half the states now tax cigarettes at $1.50 or more per pack. Several states are nearly at or above $3 per pack.
In Michigan, where the per-pack tax on cigarettes reached $2 about a dozen years ago, state legislators have unsuccessfully proposed increased excise taxes on alcohol countless times. One of the most powerful lobbying groups in the state is the Beer and Wine Wholesalers, which dishes out political contributions to lawmakers far and wide each election cycle.
Of course, any full-throated American debate about excise taxes divides the nation between those of the liberal persuasion eager to engage in a public policy issue, and the libertarian-leaning folks who just want to be left alone.
While Congress debates a mix of revenue increases and tax cuts, the website known as The Tylt points out that a modest tax hike on alcohol would generate about $70 billion in new federal revenue over the next decade, according to the nonpartisan Congressional Budget Office (CBO).
Advocates of this tax hike argue that the deterrent effect on drinking due to higher costs per glass could avert as many as 6,000 deaths per year, as well as reducing underage alcohol use. More moderate drinking patterns could chip away at the 88,000 alcohol-related deaths per year in the U.S., as reported by the Centers for Disease Control (CDC).
Still, some research indicates that a deterrent effect on drinking, based on the costs to the user, is exaggerated. In addition, taxes on booze and cigarettes are considered regressive levies that affect the poor far more than upper-income households.
In contrast, other studies assert that 40 percent of violent crimes in the U.S. involve alcohol abuse in some way.
Nothing related to this issue is obvious.
The CBO in 2013 and again in 2016 suggested that excise tax reform on alcohol presents a legitimate public policy change for Congress to consider.
The federal government currently collects about $10 billion annually from excise taxes on distilled spirits, beer and wine. But the three different types of alcoholic beverages are illogically taxed at different rates.
The excise tax levied on spirits, $13.50 on a “proof gallon,” translates to about 21 cents per ounce of alcohol. Beer, by contrast, is measured by the barrel, and the $18-per-barrel levy amounts to about 10 cents per ounce of alcohol. The levy on wine is $1.07 per gallon, or about 8 cents per ounce of alcohol.
The CBO recommended a universal tax of $16-per-gallon on the alcohol content of all beverages, which would raise an additional $70 billion over 10 years.
Clearly, a more aggressive tax plan aimed at alcohol that looks more like the extraordinary “sin taxes” placed on smoking could raise far more valuable revenues.
A significant health-related tax hike on drinking could easily generate $100 billion or $150 billion over the next decade. That could provide a significant boost for health care programs, whether those aimed at kids, the handicapped and disabled, or the poor.