Tuesday, May 19, 2009

Enough With The Alcohol Taxes Already.

Kentucky isn’t the only state that wants to balance its budget on the backs of drinkers. Illinois lawmakers are currently looking at sales tax hikes too, maybe on beer and wine, but certainly on distilled spirits.

Alcoholic beverages are always an inviting target They are seen as non-essential and some people favor high taxes to deter consumption. Even the language—-‘sin tax,’ ‘hard liquor’—-is loaded.

Some regard Kentucky as a unique case because it is a major producer, primarily of bourbon whiskey. Fewer people, even here in Illinois, know that our state is one of the top producers of grain neutral spirits, the basis for vodka, gin and many other distilled spirits products.

In addition to threatening those manufacturing jobs, higher taxes on alcohol have a negative impact on every business that sells liquor of any kind. Whether you’re talking about bars, restaurants, hotels, stores, or sports venues, the alcohol they sell is usually more profitable than just about anything else, so if higher prices caused by higher taxes hurt alcohol sales, the bottom line suffers more than it would from just about any other cost increase.

Few people realize how much drinkers already pay in taxes. If you drink, smoke and gamble, you probably should get some kind of citizenship award.

With distilled spirits, taxes cost more than the product! Here is the rundown, courtesy of the Distilled Spirits Council (DISCUS).

The retail price of a typical 750ml bottle of 80 proof distilled spirits is about $12. Of that, about $7—-nearly 60 percent-—is taxes and fees. Out of that $12, the producer, distributor and retailer split $5 among them. That $5 pays the farmer who grows the grain, the distiller who makes the product, the bottle manufacturer and label maker, the wholesaler, the retailer, and all of their employees and suppliers.

Out of the $7, the federal government takes about $2.15. state and local taxes account for another $2.40. Those are the extraordinary taxes that are there just because it’s alcohol. The rest, about $2.45, represents the normal tax burden on the various businesses involved and their employees.

One way to look at it is as a 60/40 split, with the government taking the lion’s share. Another way to look at it is as a 140% mark-up that makes a product which should cost $5 cost $12 instead.

No other consumer product, except perhaps tobacco, carries such a heavy tax burden.

Just as there is no such thing as a free lunch, there are no painless taxes. By fostering the illusion that there are in order to collect as much as possible, politicians try to pit taxpayer groups against one another. I’m a soft touch for taxes on gambling and tobacco, because those aren’t my vices. Alcohol is.

When the United States was just formed, its only taxes were import duties. Imported goods were viewed as luxuries, non-essential. It was even argued that taxes on imports were good because they encouraged domestic production. When they didn’t produce enough revenue, the government turned to taxes on distilled spirits. Distilled spirits consumers have paid more than their fair share ever since.

Arguably, those high taxes on distilled spirits have been a good thing. They have raised a lot of needed tax revenue and people probably would drink more if it cost less. But let’s be realistic. There is such a thing as killing the golden goose and it doesn’t say much for us as a society if we increasingly fund our government by exploiting our own weaknesses.


Davin de Kergommeaux said...

Gee, Chuck, with all this taxation on the product itself surely the government wouldn't have the cheek to make the distillers then pay taxes on their profits or their employees pay taxes on their earnings, and they certainly wouldn't dream of making us buy whisky with after-tax dollars would they?

Rumela said...
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