The alcohol industry has been lobbying for such cuts for years. It’s finally getting what it wanted: The Senate proposal would cut federal alcohol excise taxes by 16 percent by effectively reducing taxes across the board for beer, wine, and liquor over the next two years, according to an analysis by Adam Looney at Brookings.
To many Americans, this might seem like a good idea. It means cheaper booze, after all.
But economists and public health experts argue this would amount to a public health disaster; alcohol is if anything underpriced, they argue, given the external costs that it already carries. Consider: Alcohol is linked to 88,000 deaths each year in the US — making it the third leading cause of preventable death in America after smoking and the combination of poor diet and physical inactivity. And death is only one external cost of alcohol, with others including more crime, car crashes, and reduced economic output. All of this is enabled by cheap alcohol, which makes it easier to drink in excess.
This problem would be made worse by Congress’s tax cuts. Looney analyzes the research on alcohol prices and estimates that “the legislation will cause … approximately 1,550 total alcohol-related deaths annually from all causes.” Since the tax cuts expire after 2019, that amounts to 3,100 more preventable deaths over the next two years — and more if Congress extends the tax cuts further.
From Looney’s perspective, the alcohol tax should actually be higher. For one, Congress has failed to raise federal alcohol taxes, which are separate from state taxes on alcohol, since 1991. (They were increased somewhat regularly before then.) This has already left the taxes in a pretty bad state: As the Congressional Budget Office (CBO) noted in 2016, “current excise tax rates on alcohol are far lower than historical levels when adjusted to include the effects of inflation.”
“The great opportunity we have is to restore taxes to the real value that they had a few decades ago,” Philip Cook, a public policy expert at Duke University who wrote Paying the Tab: The Costs and Benefits of Alcohol Control, previously told me. “That’s justified by the current social costs of drinking, and would have all kinds of beneficial effects, while being justified just from the point of view that drinkers should pay for the damage that they do.”
Congress is not only shirking this opportunity, but it’s actually taking the opposite route. Based on all the research on alcohol taxes, that will lead to more preventable deaths.
How the Senate proposal would cut alcohol taxes
The current Senate tax plan would make several big changes to alcohol taxes, which are broadly separated between beer, distilled spirits (liquor), and wine:
- It would cut the per-barrel tax for beer from $18 to $16 for the first 6 million barrels that brewers produce or import, with anything beyond that still taxed at $18. And for small domestic brewers, the rate would be cut from $7 to $3.50 for the first 60,000 barrels and $16 beyond that.
- It would enact a tiered system for distilled spirits. Today, distilled spirits are taxed at $13.50 per proof gallon. Under the proposal, they would be taxed at $2.70 per proof gallon for the first 100,000 gallons produced or imported, $13.34 for above 100,000 and up to about 22.1 million gallons, and the current $13.50 rate beyond that.
- It would give producers and importers greater access to a wine tax credit.
- It would eliminate some other regulations on alcohol.
The tax cuts would last through 2019, but Congress could extend them at any point.
The tax cuts are aimed at supposedly helping small producers. But Looney of Brookings argues that, based on his analysis, “the benefits will accrue to producers across the board, providing windfalls to the large oligopolies that dominate the beer, wine, and spirits industry — and to foreign producers.”
The changes would also create a potential loophole for large producers, particularly foreign ones that are more difficult for US law enforcement officials to oversee and regulate. Looney gives an example: “For instance, a large French producer who would not otherwise qualify for the lower rates could divide its production among multiple labels or multiple importers, each below the 250,000 bottle limit, evading the tax and producing a comparative advantage for the foreign producer over the American producer.”
The changes need approval from the House, Senate, and White House. It’s unclear what the tax plan’s chances of passing — much less this particular part of the plan — are.
Congress could raise the alcohol tax instead
Instead of cutting alcohol taxes, Congress could consider raising them. In fact, there’s a plan out there that already explains how this could work.
The CBO routinely releases a report called “Options for Reducing the Deficit.” As part of this, it analyzes the possibility of raising the federal government’s alcohol excise taxes.
In the 2016 report, the CBO looked at what would happen if excise taxes were raised to $16 per proof gallon for all alcoholic beverages, along with the elimination of tax credits for small producers and exemptions for personal use. It found that this would raise $70.4 billion over 10 years.
How? First, it would help level taxes between different kinds of alcoholic beverages. As the CBO explained, “the alcohol content of beer and wine is taxed at a much lower rate than the alcohol content of distilled spirits in part because the taxes are determined on the basis of different liquid measures.” This leads to big disparities:
Distilled spirits are measured in proof gallons, which denote a liquid gallon that is 50 percent alcohol by volume. The current excise tax levied on those spirits, $13.50 per proof gallon, translates to about 21 cents per ounce of pure alcohol. Beer, by contrast, is measured by the barrel, and the current tax rate of $18 per barrel translates to about 10 cents per ounce of pure alcohol (under the assumption that the alcohol content of the beer is 4.5 percent). The current levy on table wine is $1.07 per gallon, or about 6 cents per ounce of pure alcohol (assuming an alcohol content of 13 percent). Wines with high volumes of alcohol, and sparkling wines, face a higher tax per gallon.
A $16 per proof gallon tax for all alcoholic beverages, along with the elimination of related tax credits and exemptions, would level the playing field.
It would also increase alcohol taxes across the board, the CBO found: “Under this option, the federal excise tax on a 750-milliliter bottle (commonly referred to as a fifth) of distilled spirits would rise from about $2.14 to $2.54. The tax on a six-pack of beer at 4.5 percent alcohol by volume would jump from about 33 cents to 81 cents, and the tax on a 750-milliliter bottle of wine with 13 percent alcohol by volume would increase from about 21 cents to 82 cents.”
This is just one idea for raising alcohol taxes. Some experts would like to see taxes raised by more or less. But since the CBO has actually reviewed this proposal, it offers a useful starting point — one that would raise $70.4 billion over 10 years.
An alcohol tax increase would bring huge gains for public health and safety
Obviously, this means your alcohol will cost more — 40 cents for a fifth of distilled spirits, nearly 50 cents for a six-pack of beer, and more than 60 cents for a typical bottle of wine.
“What the hell, man?” you might be thinking. “Why do you want the government all over my booze?”
The simple answer: It would save lives.
Raising alcohol taxes would increase the price of alcohol, which would make drinking more expensive, which would make people less likely to excessively drink. So fewer people would be getting drunk and doing the kinds of dumb things people do while drunk. That includes not just drunk driving but other alcohol-related problems like crime — 40 percent of violent crimes in the US involve alcohol in some way — and risky sex.
“It’s a disinhibition theory,” Charles Branas, a researcher at Columbia University, previously told me. “So it’s not so much aggressiveness, but that decisions and judgment that would normally be held in check are suddenly disinhibited under consumption of alcohol.”
One question with this is, well, does it work? Sure, you can increase the tax and make alcohol cost more. But does that actually get people to drink less?
The research shows a higher alcohol tax not only gets people to drink less, but has a particular impact on excessive drinking and its negative outcomes.
The Task Force on Community Preventive Services in 2010 reviewed the research on alcohol’s “price elasticity,” which is how much consumption changes with price. The results were clear: “Nearly all studies, including those with different study designs, found that there was an inverse relationship between the tax or price of alcohol and indices of excessive drinking or alcohol-related health outcomes. Among studies restricted to underage populations, most found that increased taxes were also signifıcantly associated with reduced consumption and alcohol-related harms.”
This chart shows the findings, with each number representing the percentage effect on excess consumption for every 1 percent increase in the price of alcohol:
There’s a simple explanation for why higher alcohol taxes are effective for reducing excessive drinking in particular: If someone is only buying a six-pack of beer or one bottle of wine a week, then a price increase of 50 or 60 cents probably won’t mean much. But as someone buys more and more, that extra cost builds up — and eventually becomes inhibitive.
Other research backs up the idea. David Roodman, a senior adviser for the Open Philanthropy Project, has conducted really thorough, impressive reviews of the research, from the effects of incarceration on crime to the domestic economic impacts of immigration. He also in 2015 took a look at the research on the alcohol tax. His findings were incredible (emphasis mine):
The literature on this topic is large, and at first glance it seemed that the high-quality studies contradicted each other. Yet as I dug deeper, I found a pattern: the larger the experiment — the larger the price change — the clearer the effects. In the end, I believe the preponderance of the evidence says that higher prices do correlate with less drinking and lower incidence of problems such as cirrhosis deaths. And I see little reason to doubt the obvious explanation: higher prices cause less drinking. A rough rule of thumb is that each 1% increase in alcohol price reduces drinking by 0.5%. Extrapolating from some of the most powerful studies, I estimate an even larger impact on the death rate from alcohol-caused diseases: 1-3% within months. By extension, a 10% price increase would cut the death rate 9-25%. For the US in 2010, this represents 2,000-6,000 averted deaths/year.
To put it another way, paying about 50 cents more for a six-pack of Bud Light would probably save thousands of lives every single year.
This is a conservative estimate. It only counts deaths from alcohol-caused diseases. The number of saved lives would be higher if it accounted for alcohol-related deaths due to violence, car crashes, and other problems.
And yes, a higher alcohol tax would have an effect in those other areas as well. A 2010 review of the research in the American Journal of Public Health, for example, concluded, “Our results suggest that doubling the alcohol tax would reduce alcohol-related mortality by an average of 35%, traffic crash deaths by 11%, sexually transmitted disease by 6%, violence by 2%, and crime by 1.4%.”
In short, higher alcohol prices — and taxes — really do reduce alcohol-related problems, including heavy drinking and underage consumption.
A common counterargument is that higher alcohol taxes could lead to job losses, since the alcohol industry may be forced to fire workers or hire fewer people to make up for the profits lost as a result of the taxes and as people cut back on their drinking. But studies and researchers have found that the revenue from the taxes and the spending shift from alcohol to non-alcohol products can lead to, on net, more jobs.
But even if higher alcohol taxes lead to fewer jobs in some cases, they could still be worth it. Jobs aren’t everything; public health and safety matter too.
By simply raising alcohol taxes, America could save lives, combat crime, and slow the spread of sexually transmitted diseases. That does mean you’ll have to pay a bit more at the checkout line next time you buy your favorite chardonnay, or maybe you’ll have to pass on the chardonnay altogether — but the research suggests it’d be worth the cost.