Federal Alcohol Taxes Due for Increase

Despite the fact that local, state, and federal lawmakers are desperate to plug holes in their budgets, advocates of alcohol taxes have struggled to gain traction. They should take heart from a Fresh Story blog post, the first in a series, published online on Aug. 31.

It’s an excellent primer on the history of federal alcohol taxes and why it makes sense to raise them now.

Taxes on alcohol have a long history in the United States. In fact, according to Fresh Story, ?the first tax ever enacted by the U.S. Congress was a tax on distilled spirits ? in 1791.? While they now contribute less than 1% of federal revenue, taxes on alcohol used to contribute a significant portion of federal revenue — 11% as recently as 1941.

What happened? Fresh Story says that inflation is part of the answer. Because alcohol taxes are not indexed to inflation, their value fell steadily over the past several decades, in spite of rate hikes, which have been rare in any case. Last increased in 1991, the adjusted value of federal alcohol taxes has plunged 39% in the twenty years since. Yet the costs of health care and public safety that are tied to alcohol use and abuse continue to spiral upward.

Raising alcohol taxes by a nickel a drink would bring in an estimated $20 billion in revenue at a time when the funds are needed. Tying them to inflation would prevent their value from eroding.

Could it happen? Surprisingly, the answer is yes. Fresh Story points to polls in which two-thirds of Americans support the idea, so the political will could be there. Regardless, it is long overdue.