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Sunday, September 17, 2023

A Better Way To Tax Alcohol

We at Twenty-One Debunked have long supported hiking alcohol taxes as an alternative to illiberal (and highly inequitable) blunt-instrument policies like the ageist abomination that is the 21 drinking age.  And there is far more evidence in favor of tax and price hikes reducing alcohol-related problems than there is for the 21 drinking age.  But what is the best way to tax alcohol?

The answer is a single tax based on alcohol by volume (ABV), regardless of whether the beverage is beer, wine, cider, distilled spirits, alcopops, or whatever, similar to what the UK recently implemented.  Instead of having multiple, widely varying tax rates based on beverage type, it makes far more sense to simply tax all alcoholic beverages equally based on their actual alcohol content, period.  It can be either a flat rate or a graduated rate with multiple rate brackets (higher alcohol content brackets have higher tax rates), but either way, it is still a major improvement over the status quo in the USA and most other countries (or the status quo ante in the UK).

The UK's new alcohol duty system is more nuanced than that, of course, and one very important nuance is the Small Producer Relief (a reduced rate for the smallest brewers and such who produce beverages of 8.5% ABV or less) which we definitely support.  Purists may not like that, of course, but tough noodles for them.  Small businesses should not get unnecessarily kicked in the teeth just to appease the purists.

So what should the tax rate be in the USA?  Twenty-One Debunked has long supported raising and equalizing the federal tax on all alcoholic beverages to the 1991 inflation-adjusted value for distilled spirits.  In 2023 dollars, that would be $30.79 per proof-gallon (proportional to alcohol content).  One could have graduated rates, of course, but if we choose a flat rate that is the one that makes the most sense.  If graduated rates are chosen, the lowest bracket should be for beverages below 3.5% at less than half the above rate, while the highest bracket (wherever it is set) could in principle be significantly higher than the above rate (note that the 1951 distilled spirits tax would be a whopping $126.92 per proof-gallon in today's dollars).  So that's actually pretty tame in comparison, as it would translate to an extra dollar or two on a six-pack of beer or bottle of wine, or a few more dollars on a bottle of spirits.

Such substantial tax hikes can be phased in gradually over several steps to minimize any downsides that may come with large, sudden tax and price hikes, of course, but the weight of the evidence suggests that any such downsides would be fairly small overall in any case (and more than outweighed by the upsides).  Note that craft breweries are apparently thriving in high-tax Canada, and even Iceland, for example.

And for small producers, the relief could either be a reduced rate up front or a tax credit later.  Additionally, similar to the UK, we could perhaps also have another nuance, "Draught Relief", which is a reduced rate (or tax credit) specifically for on-premise draught (draft) beer and cider.  As long as overall rates on the cheapest beverages end up higher than they are now, such nuances would soften the blow but not actually detract from the benefits of the tax hike.

Twenty-One Debunked is well aware that alcohol tax hikes will likely be unpopular among a sizeable chunk of the population.  But as the saying goes, if the (relatively modest) price difference bothers you so much, perhaps you are drinking too much.

(Mic drop)

UPDATE:  Looks like at least some beverage makers in the UK are reducing their alcohol content somewhat in response to the tax change, especially for beer.  Alcohol giant Diageo predictably puts a negative spin on that, of course, but if that encourages moderation (and it almost certainly will), then it is a good thing on balance.  Keep in mind that, for most of recorded history, beer was on average significantly weaker in alcohol content than it has been in the past century or two, and wine was very frequently watered down as well.  So any marginal reductions in strength due to the tax would still put the product stronger than it was for most of recorded history. 

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