States Serving Up Alcohol Taxes to Patch Budgets, Pay for Treatment

For decades alcohol industry lobbyists have succeeded in derailing most attempts to raise state alcohol taxes, but the lousy economy has many cash-hungry states now considering alcohol-tax increases — in some cases, to help pay for addiction treatment services as well as address budget deficits.

Serious proposals for increasing alcohol taxes are on the table in more than a dozen states, and governors of three trendsetting states — California, New York, and Massachusetts — have endorsed higher alcohol taxes as part of their budget proposals.

“There is overwhelming community support for a tax on alcoholic beverages that will be used, in part, to support treatment for those who suffer from the disease of alcoholism and to prevent problem drinking particularly among underage drinkers,” said John Coppola, executive director of the New York State Association of Alcohol and Substance Abuse Providers, which is backing a 10-cent-per-drink tax proposed by Assemblyman Felix Ortiz. “A dime a drink seems like a very small price for saving a life.”

This winter, California Gov. Arnold Schwarzenegger forwarded a plan to increase the state’s alcohol tax and dedicate a portion of the proceeds to addiction programs. A January poll from the Public Policy Institute of California found that raising alcohol taxes was the most popular budget fix among state voters, with 81 percent supporting Schwarzenegger’s call for increasing alcohol taxes by 5 cents per drink.

Similarly, the Oregon Partnership recently released a poll showing that 61 percent of state voters approved of an alcohol tax increase; the group is supporting a plan to increase beer taxes — which have remained at the same rate for 32 years — to raise up to $165 annually million, mostly for addiction treatment and prevention.

Michele Simon, research and policy director of the Marin Institute, a California-based industry watchdog group, said the fact that the state’s Republican governor supported raising alcohol taxes indicates that the GOP’s long-standing blanket opposition to tax increases may be crumbling. “There has been some shift because we’re in such dire straits,” she said. “But the industry is fighting tooth and nail — they’re the only thing keeping us back now.”

Effective Economic Blackmail

The alcohol industry, of course, remains a formidable foe. In New Hampshire, for example, a bill that would have raised the beer tax by 10 cents per gallon and sent the revenues to the state’s Alcohol Fund — which helps pay for addiction treatment and prevention services — was defeated when a coalition of producers, wholesalers, retailers, and the Teamsters union raised the specter of InBev closing down the state’s Anheuser-Busch brewery if the beer tax was increased.

Opponents wield a number of arguments against raising alcohol taxes, saying that higher prices will cut sales and profits in the middle of a recession, hurting bars, restaurants, liquor stores, and other small businesses: the American Beverage Institute, an industry lobbying group, claims that a 1991 increase in the federal alcohol tax led to 60,000 workers in the brewing, distribution and retail industries losing their jobs.

“It’s a bad economic time,” replied George Hacker, director of the Alcohol Policies Project at the Center for Science in the Public Interest (CSPI). “In a normal time we could say that jobs will move into other sectors of the economy … Now, it’s hard to say exactly what will happen, except that in the past the industry claims of job losses have been vastly exaggerated.”

Groups like the Tax Foundation contend that less affluent consumers will bear a disproportionate burden. However, CSPI maintains that the bottom 20 percent of taxpayers will pay only 8 percent of alcohol taxes, while the top 20 percent would bear 38 percent of the tax burden.

Trisha Lucas, policy director of the New Hampshire treatment, prevention and recovery advocacy group New Futures, said that while the alcohol industry has vast resources and familiar arguments about the impact of higher taxes, prevention advocates can also bring some compelling statistics to the table.

Despite the recent death of a proposed New Hampshire alcohol tax increase in a floor vote in the legislature, “We had some good economic and fiscal analyses done that elevated the discourse and was the reason we got as far as we did,” said Lucas. When similar tax increases were proposed in the past, she noted, “Nobody but the beer industry had any information.”

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Other states also are considering unprecedented changes in how alcoholic beverages are taxed. In Kentucky, a bill to close a $456 million budget deficit would, for the first time, subject alcoholic beverages to the state’s 6-percent sales tax in addition to the existing 11-percent wholesale tax. In North Carolina, Gov. Bev Perdue is proposing a new 5-percent tax on alcohol, saying that while she opposes broad-based tax increases, taxes on alcohol and tobacco are acceptable because smoking and drinking are voluntary activities.

New Jersey Gov. John Corzine has proposed raising the state’s wholesale alcohol tax — unchanged in 20 years — by 25 percent to close a $7-billion budget gap, although he said that beer taxes would not be increased. Idaho lawmakers have also proposed a measure that would dedicate increased alcohol taxes to paying for addiction treatment programs.

Is Timing Everything?

Advocates might like to believe that their arguments about the public-health benefits of raising the price of alcoholic beverages are finally getting through to policymakers. “People see this mostly as a revenue source; however, some are talking about the health arguments,” said CSPI’s Hacker.

Practicality also may be playing a role, he added: “It might be occurring to legislators that there’s not much more they can squeeze out of tobacco.” Many states — including those where the tobacco industry has traditionally held sway — have hiked tobacco taxes to raise badly needed revenues. Until very recently, however, corresponding hikes in “sin taxes” on alcohol have been quite rare.

“Twenty-five states haven’t raised their alcohol taxes in 20 years,” according to Hacker. “It is a source of revenue for states that has been long overlooked, and there’s a substantial evidence base suggesting that higher prices and taxes will reduce alcohol-related harms and costs. And, it is a natural source of funding for alcohol and other drug treatment and prevention.”

Recent research reviews led by Alexander Wagenaar, Ph.D., and published in the American Journal of Public Health concluded that raising alcohol taxes cuts alcohol consumption and is among the most effective way to reduce alcohol-related disease mortality.

However, the study also noted that state alcohol taxes have largely failed to keep pace with the rate of inflation.

Maryland, for example, hasn’t raised its alcohol taxes in more than 30 years, and currently collects just 2 cents in taxes on a glass of wine or shot of liquor and just 1 cent per 12-ounce beer. The Maryland legislature is currently considering legislation that would increase taxes to about 5 cents per drink, with one-third of revenues directed to treatment and prevention.

Judy Cushing, president and CEO of the Oregon Partnership, said the legislation pending in her state would raise the current alcohol tax from about .08 of a cent per glass to 15 cents per glass, which has sparked howls of protest from the alcohol industry, including local craft brewers. “They say it will raise taxes 1900 percent — but that’s 1900 percent of almost nothing,” noted Cushing.

Moreover, argues Cushing, alcohol-related problems cost Oregon nearly $6 billion annually, while higher alcohol taxes would not only raise money to help prevent and treat alcohol misuse but also cut underage drinking. “We can’t afford not to do this,” is the message the Oregon Partnership is delivering to state lawmakers, she said.

A Potential Lifesaver for Decimated Programs

Proposals to dedicate some or all of new tax revenues to paying for treatment and prevention are welcome news to state-funded programs, which have seen their funding slashed in state after state as lawmakers try to patch looming budget deficits. In Oregon, for example, the current budget plan would see publicly funded treatment “obliterated” by June 30, said Cushing. “The idea is that this tax would allow us to become whole again,” she said.

Ten states currently dedicate at least a portion of their alcohol excise taxes to addiction treatment, including Arizona, Idaho, Kansas, Mississippi, Montana, New Jersey, Nevada, Oregon, Tennessee, and Utah, according to the Marin Institute.

Tying alcohol revenues to treatment funding is no guarantee for programs, however. In New Hampshire, for example, lawmakers in 2000 required that 5 percent of profits from sales of alcohol through state liquor stores be deposited in an Alcohol Fund to pay for treatment and prevention.

However, New Hampshire lawmakers have suspended those payments in each biennial session since, replacing the earmark with their own (invariably lower) appropriation. Furthermore, Gov. John Lynch reduced appropriations for the fund by executive order in 2009, and is calling for further cuts in 2010 and 2011, even though he has supported raising alcohol taxes to raise revenue for the state.

In response, and somewhat counterintuitavely, New Futures is supporting a measure that would reduce Alcohol Fund sales allocations from 5 percent to 3.5 percent.

“This is a difficult budget cycle: 5 percent would have equaled $7 million, and we knew that was never going to happen,” explained Lucas. “Our goal was level funding, so the thought was that if we reduced the percentage … we’d be protecting the integrity of the fund.”

Despite the history of cuts, she noted, the formula has “still been a marker for what lawmakers should be giving us, so in that sense it has been useful.”

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