Of Death And Taxes

While the opioid epidemic has recently been declared a public health emergency, what if we were to tell you that there is another drug epidemic that kills even more people (a whopping 88,000 per year vs. 65,000 per year for opioid and all other drug overdoses combined), a number that has actually been increasing in recent years?  And that number, though staggering in itself, is merely the tip of a very large iceberg of injury, illness, crime, violence, motor vehicle crashes, family breakdown, addiction, and other social costs linked to this deadly yet ubiquitous substance.  Meanwhile, the powers that be are responding to this epidemic with a collective shrug for the most part.  I think the reader would figure out by now that we are talking about alcohol.

And aside from its overall banality, what is particularly notable about the alcohol epidemic is how ageist our response has been.  While the epidemic clearly affects all ages, the powers that be have been focusing in laser-like fashion on people under 21 while largely ignoring people over 21, despite the fact that people over 21 make up the vast majority of this epidemic.  Not only does this scapegoat young people for largely adult problems, but it also hinders any real solutions to such problems as well.  It's basically the "pink elephant in the room".

Fortunately, we know now after decades of reams of research evidence that there is in fact a very simple solution for reducing the death rates and other harms of excessive drinking.  And that solution is raising alcohol taxes.   The higher the price of alcoholic beverages, the fewer deaths and other alcohol-related problems occur, all else being equal.  Even modest increases seem to have a significant impact.   We know this, yet not only have the powers that be generally let the alcohol taxes lag behind inflation, but are currently trying to lower such taxes.  

So what should the ideal alcohol tax be?  According to researchers, the externality costs of alcohol are estimated to be around $45-58 per proof-gallon, yet the federal tax on distilled spirits is $13.50 per proof-gallon, and for wine and beer it varies but tends to hover between $4 and $5 per proof-gallon.   And while state and local alcohol taxes vary, they are also generally very modest in most states, especially for beer.  So there is a very wide range by which such taxes can be raised while still being socially efficient.

Twenty-One Debunked believes that, along with lowering the drinking age to 18, that alcohol taxes should be raised significantly.  Specifically, we support raising and equalizing the federal tax on all alcoholic beverages to the inflation-adjusted 1991 level for distilled spirits, which would be $24 per proof-gallon in 2016 dollars.  It should also be simplified by getting rid of all credits and lower tax rates, with perhaps the exception of ones for the first X number of gallons produced by very small domestic producers.  At the state level, it would also be good to equalize alcohol taxes across all beverage types, while allowing localities to levy their own alcohol taxes (including sales and gross excise taxes) as they see fit.  The latter is especially important for college towns.

Even a smaller hike, such as to $16 per proof-gallon across the board, would likely save thousands of lives per year according to researchers.  And of course it would also raise more revenue.  As for job losses, the best research suggests that the net effect is actually neutral or even positive with respect to jobs overall.  So it should be a no-brainer.  A win-win-win situation for everyone but the alcohol industry, basically.

Oh, and by the way:  craft breweries (both macro and micro) not only exist in high-tax Canada, but actually appear to be thriving over there.  Keep in mind that the tax hikes we propose would still leave American beverages cheaper than Canadian beverages.  So even if we raise such taxes dramatically without reduced rates or credits for small producers, they will likely continue to thrive here as well (at least if such tax hikes are phased in somewhat gradually).

Don't get us wrong, Twenty-One Debunked does not believe that alcohol is inherently evil or anything like that.   We are certainly not in league with the neo-dry lobby.   But when we as a society fail to appreciate that alcohol has a very real dark side for all ages, there are very serious consequences to doing so.  History speaks for itself.  So what are we waiting for?

O Cannabis!

The Government of Canada under Prime Minister Justin Trudeau still plans to legalize cannabis nationwide.  Though not finalized yet, it is tentatively set to go into effect sometime in July 2018.  And various provinces are already preparing for it.

As for what the age limits will be, that will be up to the provinces to decide.  The federal age limit will likely be 18, and most provinces have tentatively decided that their own cannabis smoking ages will match their drinking ages (currently 18 in Alberta, Manitoba, and Quebec, 19 elsewhere).  Thus, the age limit for cannabis in Canada will most likely end up being 18 or 19, depending on the province.

For the record, Twenty-One Debunked believes that the age limits for alcohol, tobacco and cannabis should be 18, or at least no higher than that.  We in the USA (where in the growing number of states in which cannabis is legal, the age limit is 21) can really learn a lot from our friendly neighbor to the north!

How to Quash a Black Market in Five Easy Steps

A black market (or underground economy) typically occurs when the legitimate market for a particular good or service is either nonexistent, out of reach, or otherwise far too insufficient to meet the demand for that good or service.  Black markets are by definition illegal to one degree or another, while informal markets that are technically legal or quasi-legal are known as gray markets.   While the usual proximal cause for a black market is prohibition of a good or service (and thus no legitimate market existing), a black market can also occur (albeit to a much lesser extent) when the taxes and/or other government fees on or surrounding the product or activity are excessively high relative to what consumers are willing to pay (and relative to the informal economy).  Sometimes taxes can be so high so as to be considered "prohibition by price", though the relative price difference is typically far more important than the absolute price.

Twenty-One Debunked believes in raising alcohol taxes significantly in conjunction with lowering the drinking age to 18.  The level we suggest ($24/proof-gallon, equalized for all alcoholic beverages), though significantly higher than now, would still be too low to encourage a significant amount of moonshining and bootlegging.  But what about cannabis, which is currently being legalized in more and more states, many of which started out with fairly high taxes and/or licensing fees?  Though a positive development overall, in some of such places, the black market still exists to one degree or another, albeit much less so than when cannabis was illegal.  And of course we all know that places like NYC with extremely high cigarette taxes have their share of black markets in untaxed, out of state, counterfeit, and/or stolen cigarettes as well.  So how does one solve such a problem?

Enter Rear Admiral Luther E. Gregory.  In the 1930s, Prohibition was repealed, and Washington State along with other states were now faced with the task of shutting down the well-established bootleggers and speakeasies that persisted even after Repeal.   Admiral Gregory was asked to head the state's Liquor Control Board, and given carte blanche to come up with a solution, one which worked surprisingly well in fact:

1. End Prohibition, first of all.
2. Give amnesty and issue licenses to anyone willing to play by the state's rules, whether former bootleggers or otherwise.
3. Set the alcohol taxes as low as possible at first, the lowest in the country in fact.
4. Punish sellers who don't play by the rules, with an iron fist--i.e. blacklisting scofflaws from ever selling liquor in the state again.
5. After holding down alcohol taxes for three years, abruptly raise taxes to the point where they're now the highest in the nation.

Problem solved.  The legal market proved to be competitive with what was left of the black market, and drinkers preferred the former over the latter, driving the latter out of business.  And the black market never came back even after raising taxes dramatically.  Looking back, it should have been so obvious indeed.

Substitute "cannabis" for "alcohol", and there is no reason why this strategy would not work in this day and age.  And instead of holding down taxes for three years, merely one year should be sufficient to get the same results, even if the hike is automatically scheduled.  Doing so would minimize the greatest risk of the strategy, namely, that the fledgling legal cannabis industry would then become so powerful that they would resist and successfully quash any attempt to raise taxes in the future.  They would not become that powerful in just one year, and probably not for several years, but the black market could be easily quashed in that timeframe all the same.

As for cigarette taxes, both NYC and NYS should implement this strategy as well.  And of course, the low-tax states such as Virginia should also raise their cigarette taxes (within reason) so as to not be such a source state for cigarette smuggling to other states.  And of course, lower NYC's age limit back to 18 as well.  Same for cannabis in legalized states as well.

In fact, this strategy would work for just about any type of black market.  That's because it is based on the hard facts of economics, not half-baked wishful thinking.  Unlike prohibition or unrealistically high age limits, taxes are not a "blunt" policy instrument, but rather a razor-sharp, double-edged sword.

So what are we waiting for?