Prohibition Versus Taxation Revisited

Blast from the past:  Rediscovering two studies from the 1990s by Professor Donald S. Kenkel:

PROHIBITION VERSUS TAXATION: RECONSIDERING THE LEGAL DRINKING AGE (1993)

https://onlinelibrary.wiley.com/doi/10.1111/j.1465-7287.1993.tb00389.x

"The legal drinking age targets a group at a high risk of alcohol-related problems. This paper argues that taxation could achieve the same benefits as the legal drinking age at a substantially lower social cost. Existing empirical research suggests that simultaneously lowering the legal age to 18 and taxing alcohol purchases at between 12 to 86 percent of the current price would achieve the same results as the current legal age. Levying a special teen tax only on young adults would minimize its social costs. Teen tax revenues between $564 million to $4.03 billion measure the net social gain of replacing the current prohibition on young adults' alcohol purchases with a taxation policy."

And the other one from three years later:

NEW ESTIMATES OF THE OPTIMAL TAX ON ALCOHOL (1996)

https://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1996.tb01379.x

"In this paper I use a new data set to estimate the optimal alcohol tax rate. As a benchmark, the empirical results imply that the optimal tax rate is over 100 percent of the net-of-tax price. However, alcohol taxation is a second-best solution to the problems associated with alcohol abuse. I conclude that the optimal alcohol tax rate would be much lower if punishment for drunk driving were more certain and severe. Government provision of information about the health consequences of heavy drinking would also remove part of the efficiency rationale for alcohol taxes."

Twenty-One Debunked does NOT support the idea of different tax rates for different ages, as that idea would likely be impractical and still discriminatory.  It is essentially a left-brain dominant idea that mistakes the map for the territory, and almost a full-blown category error.  In that vein, Kenkel really begins to coast after being off to a good start otherwise.  And, as we see from the second study three years later, the level of the optimal tax is within the range of what would be needed to offset the putative social costs of lowering the drinking age to 18, and vice-versa.

And as we have seen from Miron and Tetelbaum (2009) and Dee and Evans (2001), and many other studies, the supposed benefits of the 21 drinking age are overstated at best, and likely non-existent in the long run.  And in fact, Miron and Tetelbaum also found by the way that the beer tax has a larger lifesaving effect than the 21 drinking age.

Putting it all together, even a relatively modest hike in the alcohol taxes would be enough to offset the supposed negative effects of lowering the drinking age to 18, especially if we also make the punishment for DUI more certain and severe (which we certainly support).  In fact, the late Mark Kleiman (hardly a libertarian zealot) actually recommended many years ago that we should abolish the drinking age entirely, and raise the alcohol tax to a level that would roughly double the price of alcohol (similar to current Canadian prices).  And while the Overton window would strongly preclude something so audacious at this time, he does make a good point regardless.

So what are we waiting for?  Lower the drinking age to 18, raise the alcohol taxes, get tougher on actual drunk driving and drunk violence, and let America be America again!

Why Do Small Alcohol Tax/Price Hikes Have Such Large Effects On Drunk Driving Casualties?

We have noted before how alcohol tax (and thus price) hikes have been proven time and again to save lives, whether from traffic deaths, other accidental deaths, violent deaths, as well as deaths from more direct alcohol-related conditions such as alcoholic liver disease.  The question remains, why such relatively small differences in price have such relatively large effects, that can sometimes even be large enough to strain the reader's credulity?

For things like liver cirrhosis, the answer is pretty straightforward:  cirrhosis is chronic and cumulative, but it is also progressive as well.  At any given time, some unknown number of people (and unknown to the people themselves as well) may be just one binge away from near-certain death.  And for them, even a very modest near-term reduction in drinking due to a price hike (which to a very heavy drinker, is not trivial, since they spend so much on alcohol) can very well save their life.

But what about less direct things like drunk driving casualties?  Well, one needs to think like an economist, that is, on the margin.  It is the last drink of any given drinking session that determines one's final BAC of the session, and it is the final BAC that determines how impaired one is in the event of driving home.  And we know that the fatal or serious crash risk rises exponentially with BAC, thus even a modest reduction (say, one fewer drink per session) would dramatically reduce the risk of such casualties, even though the risk still remains significantly elevated compared to not drinking at all before driving.  At on-premise locations like bars, a tax hike is likely to be passed through at a rate greater than one-to-one due to rounding up, so it is very plausible that at least some people will have one fewer drink per session as a result.  Or alternatively, they may drink before going out to save money, but that would make them more likely to plan ahead and not drive there, so they would be even less likely to drive back home as a result. 

Either way, the fairly recent examples of Illinois and Maryland seeing sizeable reductions in traffic deaths after relatively modest alcohol tax hikes in 2009 and 2011, respectively, definitely supports this hypothesis.  And it shows that this classic "tax-price-consumption-fatalities" relationship is still as relevant as ever now in the 21st century, even if it has been attenuated a bit since the 1980s.  And most of the gazillion studies on the matter have found that the effect is larger than that of the meretricious "crown jewel" of the neo-prohibitionist public health fascists and ageist bigots, namely the 21 drinking age, with the supposed lifesaving effect of the latter being most likely spurious, inconsequential, or even perverse in the long run.

In other words, it's really a no-brainer to raise alcohol taxes, yesterday.  Especially with alcohol being so dangerously cheap right now in America.  So what are we waiting for?