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OCR for page 45
4
The Price and
Availability of
~ l l HI lull
FOR OVER THREE DECADES the average price of alcoholic bev-
erages in relation to that of other commodities has been
going clown. One of the main reasons for this decline is
that federal and state taxes on alcohol have not kept up with
inflation. Federal taxes on beer and wine have not changed
since 1951, when they were set at 16 cents on a six-pack of beer
and from 3 to 67 cents on a 750-milliliter bottle of wine. Federal
taxes on distilled liquors did not change from 1951 until 1984,
when they rose from $~.68 on a fifth of 80 proof liquor to $2.00.
State taxes on alcoholic beverages have risen gradually during
this period, but not at anywhere near the rate of inflation.
Thus, the "real" price of alcohol its price relative to that of
other goods and services has dropped steadily (see Figure 4.11.
Since 1967, inflation has cut the real price of distilled liquors
nearly in half. The real prices of beer and wine have dropped
by about a quarter and a fifth, respectively. Alcoholic beverages
are now so inexpensive that their prices are within range of
many nonalcoholic drinks. "Soft drinks and beer now sell at
roughly the same price," says Dan Beauchamp of the University
of North Carolina. "This was not true 15 years ago. The cost
of nonalcoholic beverages has more than tripled in the same
45
OCR for page 46
46 / ALCOHOL IN AMERICA
1967
1975
CoNSo M ER
pPlcEs
RECEIVE
3
-1 980
~_0
FIGURE 4.1 The average price of alcoholic beverages has not been going
up as fast as the average price of all goods and services. As a result, alcoholic
beverages have become relatively cheaper, which accounts for part of the rise
in consumption over the past several decades. Source: Bureau of Labor Sta-
tistics, U.S. Department of Labor.
period that the cost of alcoholic beverages has less than dou-
bled, and we now see price convergence of the two."
During the last three and a half decades, the per capita con-
sumption of alcohol has been on the rise. It stayed roughly the
same in the 1950s, spurted up in the 1960s, and rose slowly in
the 1970s and 1980s. Since 1950, the per capita consumption of
alcohol has risen over 30 percent.
One cannot assume that all of this increased consumption
came about because alcoholic beverages were getting cheaper.
Other factors, such as higher incomes, changing health habits,
more tolerant attitudes toward drinking, and expanded mar-
keting efforts may also have come into play. However, research
OCR for page 47
THE PRICE AND AVAlEABlLI~ OF ALCOHOL / 47
to determine the weight of these competing factors relative to
price changes was not widely conducted in this period.
Still, several lines of experimental and econometric evidence
indicate that the price of alcohol has a substantial effect on how
much people drink, which means that federal and state gov-
ernments, by not keeping taxes up with inflation, have con-
tributed to the increase in drinking in America since the 1950s.
Similarly, it means that federal and state governments, by in-
creasing their taxes on alcohol, have the capability to reduce
the consumption of alcohol in this country. To decide whether
they should do so requires a careful balancing of the costs of
raising taxes against the costs of the alcohol-related problems
that could be eliminated by reducing drinking.
Price is not the only attribute of alcohol sales that govern-
ments can control. There are a host of ways in which alcohol
can become more or less available: New outlets or new kinds
of outlets can open in neighborhoods or shopping centers; bars
or liquor stores can keep longer hours; the minimum drinking
age can go down or up. All of these changes can influence how
easy it is to get alcohol and how much or where people drink.
They are all potential instruments of public policies aimed at
preventing alcohol problems.
Recent decades have seen a general relaxation of restrictions
on the availability of alcohol. More outlets have opened, and
they have been open more hours of the day. Drinking ages
have gone down (although in some states they have more re-
cently increased). The real price of alcohol has fallen. Given the
toll that drinking exacts on society, many people have begun
to ask whether it is possible to reenergize this gradually weak-
ening regulatory apparatus to reduce the number of alcohol-
related problems in America.
Government Regulation of AZcoho! Sales
Throughout American history commerce in alcoholic bever-
ages has been closely regulated and heavily taxed by federal
and state governments. The first internal revenue law enacted
by Congress under the Constitution was a liquor excise tax.
Until Prohibition, taxes on alcohol were a major source of in-
OCR for page 48
48 / ALCOHOL IN AMERICA
come for the federal government. In 1907 they constituted 80
percent of all federal internal tax revenues. Even at the begin-
ning of World War Il they accounted for 10 percent of these
revenues. Today they figure very lightly in governmental bud-
gets, averaging only about ~ percent of revenues at the federal,
state, and local levels.
The repeal of Prohibition did not signal the end of govern-
mental attempts to control alcohol. On the contrary, a host of
federal, state, and local agencies oversee the commerce of al-
coho} from manufacture through final sale. At the federal level,
the Bureau of Alcohol, Tobacco, and Firearms licenses manu-
facturers, wholesalers, and importers and regulates the adver-
tising, size of containers, potency, and labeling of alcoholic
beverages. It also collects around $5.5 billion each year from
taxes on alcohol, with state and local governments taking an-
other $6 billion (on total retail sales of over $60 billion).
Other federal agencies also have an influence on the price
and availability of alcohol. The Department of Defense controls
alcohol sales in clubs and post exchanges throughout the mil-
itary. Eight million people are eligible to buy alcohol at these
outlets, making this jurisdiction larger than that of many states.
The Small Business Administration, since changing its rules in
the late 1960s, has been lending money to the owners of taverns
and liquor stores. And, as of this writing, the Internal Revenue
Service's rulings on deductions for business-related meals and
drinks countenance the three-martini lunch.
State and local governments have an even more prominent
role in regulating the alcoholic beverage industry. They control
almost every aspect of retail sale. All states set a minimum age
for legal purchase, ranging from IS to 21 years, and prescribe
penalties for retailers who knowingly sell to underage custom-
ers. Most states restrict advertising, hours of sale, selling on
credit, and so forth. The 2Ist Amendment left it to the states
to decicle if they wanted to remain dry. Many states have passed
this option to local jurisdictions. In 1983 about ~ million of the
United States' 226 million people lived in dry jurisdictions.
After Prohibition, IS states created state or county liquor
monopolies, to separate private profit from at least parts of the
industry. The other states and the District of Columbia created
OCR for page 49
THE PRICE AND AVAlEABRI~ OF ALCOHOL / 49
licensing systems in which a regulatory agency oversees the
distribution and sate of alcoholic beverages. Known as Alco-
holic Beverage Control (ABC) boards in most states, these agen-
cies decide which wholesalers and retailers will be permitted
to operate in the state. They can also influence the density,
location, and kind of retail outlets through their licensing ac-
tivities. Finally, these boards license outlets such as restaurants
that sell alcohol for on-site consumption.
The ABC boards were originally established to prevent the
abuses of the pre-Prohibition era. They were intended to curb
vicious or excessive drinking. But this purpose has gradually
faded. A survey conducted in the mid-1970s by Medicine in the
Public Interest found that the overwhelming majority of ABC
administrators felt their responsibilities were not in any way
related to public health. They instead stressed the importance
of collecting tax revenues, maintaining orderly markets, and
excluding crime from the business.
Yet it is clear that ABC laws also promote temperance and
discourage inappropriate drinking, albeit less visibly. Minimum
age laws, limits on the number and nature of outlets, and to
some extent high taxes are all intended to limit the availability
of alcohol and reduce the harm of inappropriate drinking. Re-
cently, interest has been growing in again strengthening these
mechanisms to lessen drinking problems. But the ghost of Pro-
hibition continues to restrain such preventive efforts. It would
be an important step forward to dissociate these efforts from
the distorted image of Prohibition that now prevails.
Alcohol Prices, Highway Fatalities, and
Cirrhosis Death Rates
A fundamental law of economics holds that as the price of
something goes up, people will generally buy less of it. This
undoubtedly explains part of the decline in drinking during
Prohibition. The price of alcohol roughly tripled or quadrupled
after the ISth Amenclment took effect. Many people, especially
Medicine in the Public Interest. The Effects of Alcoholic-Beverage-Control Laws.
Washington, D.C.: Medicine in the Public Interest, Inc., 1979.
OCR for page 50
50 / ALCOHOL IN~ERICA
those with lower incomes, could not afford to drink as much
as they had before, even if they had access to alcohol.
The same effect, in reverse, may also account for part of the
increase in per capita consumption that has occurred since the
1950s (see Figure 4-2~. Over that period the real price of alcohol
has dropped, largely because federal and state taxes have not
kept up with inflation. At the same time, per capita consump-
tion has gone up over 30 percent.
Of course, different people respond to changes in the price
of alcohol in different ways. If a tax increase were to up the
price of alcohol, one person might buy less, another might
pER
cAPITA' . . ~+,n~l
CON'
(gal
2~! _
2.( _
1.
O.
. ~
3a ~
11
1 960
1980
197°
——demand Older
FIGURE 4.2 The per capita consumption of alcohol by adults in the United
States has risen over 30 percent since 1950, with the greatest increase occurring
during the 1960s. A number of factors have contributed to this increased
consumption, including lower relative prices, more liberal attitudes toward
drinking, and higher personal incomes. Source: National Institute on Alcohol
Abuse and Alcoholism.
OCR for page 51
THE PRICE AND AVA~AB~ OF ALCOHOL / 51
switch to a cheaper brand, another might drink just as much
as before and pay the extra cost. This uncertain behavior is
especially critical in the case of heavy drinkers, who account
for a substantial portion of all alcohol consumed.
But even though it is difficult to predict how a particular
person will behave, it is possible to draw conclusions about
large groups of people. For instance, a tenfold increase during
World War ~ in the price of aquavit in Denmark (the national
beverage at that time) greatly reducecl per capita consumption
and the prevalence of heavy drinking. Also, the 26 percent rise
in per capita consumption in the United States between 1961
and 1971 coincided with an increase in the death rate due to
cirrhosis from Il.3 to 15.4 per 100,000 people. This rate would
be an estimated 3 to 4 per 100,000 people if no alcohol were
consumed.
Prohibition offers another example of how increases in price,
reductions in consumption, and improvements in public health
are linked. Statistics from this period uniformly indicate that
drinking declined markedly as a result of Prohibition, especially
among blue-collar workers. At the same time, deaths from cir-
rhosis and alcohol overdoses dropped to their lowest levels ever
in the twentieth century. During the first years of Prohibition
arrests for public drunkenness and admissions to mental hos-
pitals for alcoholic psychoses (delirium tremens and dementias)
plunged.
Some direct tests of the relations between the tax rates on
alcohol, its consumption, and the effects of alcohol abuse have
been performed by Philip Cook and his colleagues at Duke
University. Cook examined the effects of 39 different increases
in state liquor taxes between 1961 and 1975. These increases
ranger! from 4 cents to 28 cents on a fifth of 80 proof liquor (the
federal tax during this time stayed constant at $~.68~. He found
not only a direct link between these price increases and con-
sumption but also a connection between these price increases
and two of the most serious consequences of alcohol use-
cirrhosis of the liver and highway fatalities.
Whenever a state increased its liquor tax, Cook compared
the change in that state's per capita consumption of alcohol
with the changes in per capita consumption for all other states
OCR for page 52
52 / ALCOHOL IN AMERICA
during that year. If the price of alcohol had an effect on con-
sumption, the state in which the tax increased would be likely
to have a relatively negative change in consumption. In 30 out
of 39 cases, Cook found this to be true. "This is very strong
evidence that an increase in tax reduces reporter! liquor sales
in a state," he conclucled.
Cook next applied this analysis to the death rates from cir-
rhosis for each of the states. Cirrhosis is a disease that generally
develops after many years of heavy drinking. But because it is
to some extent an interruptible disease, a decline in drinking
could have an immediate effect on cirrhosis mortality. At any
given time there is a reservoir of people who are within one
year of dying from cirrhosis. if some of these people reduce
their drinking because of a tax increase, the progress of their
disease will slow and the rate of death from cirrhosis will go
down.
Cook found that states with increased liquor taxes tended to
have decreased cirrhosis mortality, a statistical result that could
happen by chance just one time in fourteen. He concluded,
"There is considerable statistical evidence that a liquor tax in-
crease causes an immediate anc! substantial reduction in cir-
rhosis mortality." Cook also applied this analysis to the rate of
highway fatalities in each state. Again, he found that mortality
was linked to changes in the price of alcohol, an outcome that
could result by chance just 4 percent of the time.
A more recent study by Cook and George Tauchen further
quantified the link between tax increases and cirrhosis mortal-
ity.2 Based on 1981 prices, their study found that an increase
in the federal liquor tax of 16 cents on a fifth of 80 proof spirits
would reduce the nation's cirrhosis mortality rate by I.9 per-
cent. This effect "is far from trivial," Cook says. "According to
this estimate, a doubling of the U.S. federal liquor tax would
reduce the nation's cirrhosis mortality rate by a figure in the
neighborhood of 20 percent."
Other researchers have found the magnitude of this potential
reduction striking. "The effect estimated by Cook and Tauchen
2p. I. Cook and G. Tauchen. The effect of liquor taxes on heat drinking.
Bell journal of Economics 13 (1982~:379-390.
OCR for page 53
THE PRICE AND AVA~AB~ OF ALCOHOL / 53
is extraordinarily large," says Jeffrey Harris of the Massachu-
setts Institute of Technology. "A 20 percent decline would mean
a postponement of about 6,000 deaths annually." Harris cau-
tions, however, that "several additional lines of research are
needed to fill in the gaps in the taxation-cirrhosis story." Among
these are the response of individuals to price increases in al-
cohol, the shifts in demand among liquor, wine, and beer as
the price of each changes, and the prevalence trend of cirrhosis
that is not related to drinking.
More recent studies have begun to fill some of these gaps,
and support for the linkage between alcohol price increases and
cirrhosis mortality is increasing, though some students of al-
coho! issues remain dubious about effects of the size Cook ant!
Tauchen estimate. Balancing such doubts against the results of
systematic analyses, the National Research Council pane! on
alcohol abuse found the evidence sufficiently strong to con-
clude: "Alcohol consumption and the problems caused by it
respond to the price of alcoholic beverages, and we infer that
the large reductions in the real cost of alcohol to consumers in
recent years are likely to have exacerbated drinking prob-
lems.... Therefore we see good grounds for incorporating an
interest in the prevention of alcohol problems into the setting
of tax rates on alcohol."
Options for Increasing Alcohol Taxes
If the federal government decided to raise taxes on alcohol,
it could do so in many different ways. One option would be
to restore the federal tax in real terms to its 1951 level. This
would raise the federal taxes on distilled liquors from $2.00 for
a fifth of 80 proof liquor to about $5.00. Federal taxes on beer
would rise to about 50 cents on a six-pack and to as much as
$2.00 on a 750-milliliter bottle of fortified wine.
A less extreme but still substantial step would be for the
federal government to double its taxes on alcohol, as it clid for
cigarettes in 1982. A six-pack of beer would cost 16 cents more,
all other things being equal. A fifth of 80 proof liquor would
cost nearly $2.00 more. Overall, if the tax increase were fully
OCR for page 54
54 / Ar~coHoL IN AMERICA
passed on to consumers, the price of liquor would go up by
about 24 percent.
The amount of revenue this would generate for the government
would depend on how people responded to the higher prices. If
people bought just as much liquor as they do now and simply
paid the higher prices, federal revenues would clouble, going from
around $5.5 billion to $12 billion. If people drank less but spent
just as much money as they do now, a greater portion of their
expenditures would go for taxes and federal revenues would rise
from $5.5 billion to $10 billion. Similarly, if the federal government
returned its taxes to the 1951 level In real terms and people spent
no more money on alcohol than they do now, federal revenues
from alcohol taxes would rise to $15 billion.
These hypothetical tax increases are Oven only as examples,
not as concrete proposals. As discussed later in this chapter,
real tax increases would be much more complex, as would be
the responses to those increases. One of these complications is
that it may make sense to change taxes on different kinds of
alcohol by different amounts. Under the current system dis-
tilled spirits are taxed much more heavily than beer and table
wine. Per ounce of pure alcohol, liquor is taxed at 19 cents,
beer at 6 cents, and table wine at about ~ cent. In part, this
reflects the continued sway of the temperance idea that beer
and wine are drinks of moderation and less harmful than dis-
tilled spirits.
Research has cast doubt on the validity of this preconception.
Drunk drivers and alcoholics report drinking beer and wine as
wed as hard liquor. The major diseases associated with drinking
depend only on the consumption of alcohol, not on the type
of beverage in which it comes.
It may therefore be more appropriate to tax alcoholic bev-
erages according to their alcohol content. For instance, if the
federal taxes on beer and wine were made equal to the tax on
liquor in these terms, a six-pack of beer would cost 35 cents
more and an average size bottle of wine would cost about 50
cents more. Such a tax increase wouIc! raise more revenues for
the federal government than would simply doubling the tax
rates on all three beverage types.
OCR for page 55
THE PRICE AND AVA~AB~= OF ALCOHOL / 55
Complexities of Increasing AZcohoZ Taxes
There are several adverse consequences of raising alcohol
taxes, and these, too, must be considered in establishing pol-
icies. One frequently heard objection is that alcohol taxes are
indiscriminate, that they affect the drinker who is unlikely to
have any problems with alcohol as well as the drinker who is.
As noted in Chapter 2, however, it is often difficult to make
this distinction. Also, higher taxes on alcohol may have benefits
that apply to everyone in society. If they succeed in reducing
the number of problems associated with alcohol, everyone wouIcl
profit from safer highways, lower automobile and health in-
surance premiums, and fewer problems among friends and
acquaintances.
Another question about higher alcohol taxes is whether they
would overburden America's heaviest drinkers. Because just 5
percent of all adults drink 50 percent of the alcohol consumed
in the United States, this small part of the population would
pay about half of the increased taxes on alcohol. If some portion
of these people are physiologically addicted to alcohol, might
they drink just as much and pay the extra cost, making their
lives more difficult without affecting their dependence on al-
cohol?
The work of Philip Cook and other researchers points in a
different direction. Because people who contract cirrhosis are
generally very heavy drinkers, cirrhosis death rates are a com-
monly usec! proxy measure of alcoholism. Thus a drop in cir-
rhosis death rates with an increase in the price of alcohol, which
is the correlation Cook demonstrated, is evidence that very
heavy drinkers are changing their consumption in response to
price. Other researchers have used related measures to show
that the drinking habits of alcoholics and other problem drink-
ers are not immune to the laws of supply and demand.
Another point that should be made is that people who drink
excessively suffer proportionately more of the physical, social,
economic, and emotional problems associated with drinking.
In this sense, an increased tax on alcohol is more selective than
it might appear. If excessive drinkers reduce their consumption
OCR for page 56
56 / ALCOHOL IN~ERICA
in response to a higher tax, they could suffer fewer health
problems and be more successful at their jobs. Thus their fi-
nancial situation could improve because of a tax increase, al-
though as usual this would vary from person to person.
Excessive drinkers also tend to use more of the public services
provided for alcohol-related problems. These drinkers place
expensive demands on medical care, alcoholism treatment,
minimum income maintenance, and other social services. Tax
receipts from alcohol sales already cover some of the public
outlays for the portions of these services that go for alcohol
problems. But, as we will see in the last section of this chapter,
policymakers may wish to make this link explicit by requiring
that increased taxes help pay for more extensive services.
One last question to be considered is how much more heavily
higher alcohol taxes fall on poor families than on wealthier ones.
in principle, excise taxes on alcohol are regressive in that they
equal a lower percentage of a household's income as that in-
come goes up. However, they are not as regressive in practice.
Surveys show that purchases of alcohol increase as incomes
rise, implying that wealthier people would also pay more of a
tax increase. The consumption of alcohol "markedly increases
with income," says Jeffrey Harris. "As in the case of tobacco,
the reduced consumption at very low incomes reflects to some
degree a large number of older, low-income abstainers." Even
when age is taken into account, however, alcohol use increases
with income.
Limits on the Availability of Alcohol
The price of alcohol is only one of many factors that influence
how much, where, and when people drink. Other important
factors are those that influence how easy it is to get alcohol.
Over the last three decades legal restrictions on the availability
of alcohol have generally eased. Minimum drinking ages have
gone down (though recently they have been going back up),
alcohol has been sold at more kinds of places, and these places
have kept longer hours. it seems clear that if alcoholic beverages
are sold in more restaurants, cafeterias, sports arenas, theaters,
and other places, consumption will rise.
OCR for page 57
THE PRICE AND AVAlLABRI~ OF ALCOHOL / 57
Federal, state, and local governments regulate these sales in
various ways. They set minimum drinking ages. They control
the number, location, and kinds of retail outlets. And they
control the operation of these outlets by specifying legal hours
of sale, setting minimum or maximum purchases per customer,
requiring that food be served with drinks, prohibiting sales to
drunk customers, requiring that operators maintain orderly
premises, and so on.
Using this apparatus of regulation to prevent alcohol-related
problems need not entail a return to the severe restrictions of
the past. Less drastic changes can also influence the amount
or the setting in which people drink. For instance, asks Robert
Reynolds of San Diego County's Department of Health Ser-
vices, "Is there any real reason to continue the sale of beer and
wine in a stadium after the seventh inning, when people are
about to drive out? Or in recreation sites? . . . These are areas
of availability that do not specifically have to do with licensing
regulations, but with local values and mores."
Regulations on availability can also be used in more tradi-
tional ways, especially to counter specific local problems. "There
are many strategies that are the prerogatives of local govern-
ments, such as zoning, that can be user! in heavily impacted
areas," says Reynolds. "Why should a community not choose
to refuse more outlets if, for example, its alcohol-related crime
rate is already 20 percent above the norm? Communities can
mobilize around those kinds of issues and have an impact on
the number of outlets permitted."
The results of broad changes in the availability of alcohol are
sometimes difficult to predict. For guidance, researchers have
often looked to the experience of other countries, such as Fin-
land in the 1960s and 1970s. There a long period of liberalization
during the 1960s culminated in the passage of the Alcohol Act
of 1969. This act abolished restrictions that had banned alcohol
sales in rural areas, lowered the drinking age for certain bev-
erages, and permitted retail shops to sell beer with a higher
alcohol content.
According to Dan Beauchamp, who has studied this episode
intensively, "The effects of these changes took virtually every-
one by surprise." During the first year after the act, per capita
OCR for page 58
58 / ALCOHOL IN AMERICA
~ ~ O' ~ . ~
in_
Outlets selling alcohol have multiplied in recent years, making alcohol available at a
much wider range of places and times.
consumption rose 46 percent. By 1975 the Finns were drinking
156 percent more beer, 96 percent more spirits, and 87 percent
more wine. Total per capita consumption was more than twice
what it had been just seven years before.
The Alcohol Act of 1969 was not the only catalyst for in-
creasecT drinking during those years. Consumer expenditures
per capita were also increasing, and general cultural attitudes
were becoming more liberal, especially among young people.
But the act contributed to the creation of a dense distribution
network in Finland that had the effect of increasing consump-
tion.
Does this experience have any relevance for the United States,
where a dense distribution network for the most part already
exists? Research on variations in the number or location of
outlets in various parts of the United States has been inconclu-
sive, and there are specific situations about which little is known.
For instance, do sales of alcoholic beverages in groceries or
drugstores increase the amount consumed? Do minimarts at-
tached to gas stations lead to more drunk driving?
OCR for page 59
THE PRICE AND AVA~AB~H OF ALCOHOL / 59
Overall, conclucles Michael Goodstacit of the Alcoholism and
Drug Addiction Research Foundation in Toronto, the issue of
availability is much like that of violence on television. The data
suggesting a link between greater availability and more cirink-
ing are not conclusive. But they are strong enough for policy-
makers to view with caution any action that would make alcohol
more available. "Quite a number of studies, in addition to com-
mon sense, would suggest that we stop making alcohol ever
more available," says Goodstadt. "The data are not sterling,
you would not stake your entire reputation on any single study,
but collectively you would say: 'Hold on.' "
Political Realities
Legislators must take into account many competing concerns
besides public health in making decisions about alcohol policy.
For instance, when Congress raised the federal tax on cigarettes
from ~ cents to 16 cents per pack in 1982 (it too had not been
changed since the 1950s), the incidence of lung cancer may not
have been as forceful an argument as the need to help reduce
a skyrocketing federal deficit. Still, if people smoke less as a
result of the price hike, one effect of the tax increase will be an
improvement in health.
Increasing the taxes on alcohol could have this same dual
effect. "Taxation has the clear advantage of working at a dis-
tance from people and accomplishing more than one end, which
in politics is always good," says Dan Beauchamp. Whatever a
legislator's motivation, higher taxes on alcohol could both re-
duce alcohol problems and raise public revenues. "There are a
number of alternatives for reducing the U.S. budget deficit,"
says Cook. "Few of them have the substantial beneficial side
effects that would result from raising the alcohol excise tax
rates."
Then again, there are a number of powerful factors working
against an increase in alcohol taxes. For instance, higher taxes
at the federal or state level may affect the net receipts of the
alcoholic beverage industry and impinge on the profit margins
or business practices of brewers, vintners, distillers, and the
thousands of restaurants, taverns, liquor stores, and other out-
OCR for page 60
60 / ALCOHOL IN~ERICA
lets that sell alcohol. These effects will be closely scrutinized,
for, as John Vassallo of New Jersey's Division of Alcoholic Bev-
erage Control points out, "Alcoholic beverage taxes or profits
(in the control states) are very important to the economy of
almost every state."
People who suspect they would be adversely affected by a
tax increase can be expected to make their voices heard in a
legislature. The alcoholic beverage industry has traditionally
been a powerful constituency, and their influence on alcohol
policy can be strong. Michael Fox of the Ohio General Assembly
has experienced this kind of pressure firsthand:
A lot of folks make a good living selling alcoholic beverages, and they have
for years contended that tax policy affects consumption. I spent four years
on the state government committee in Ohio, and all we heard in that com-
mittee were what we affectionately called "booze bills." One after another,
the tavern owners and the wholesalers would come before us and say, "You
are putting us out of business, this is affecting our sales...."
I mention this as a word of caution. There is a real world out there in which
legislators get beat over the head. If a bill goes to a state government com-
mittee or a similar committee in one of the legislatures, it will have a hard
time getting out of committee because such committees are dominated by
people who are generally friendly to the industry.
One way that legislators have made tax increases more ac-
ceptable to the public is by earmarking portions of the revenues
obtained for use in specific alcohol treatment or prevention
programs. Small taxes on alcohol can generate relatively large
revenues for alcohol programs, and several states have already
taken steps in this direction. New York State requires that half
of the money collected from drunk driving fines be returned
to the county where the arrest was made for education and
prevention programs. Other states require drunk drivers to pay
for their own treatment programs. Such links between cause
and effect can be politically essential. "It has become very clear,"
says Alfred McAlister of the University of Texas, "that the po-
litical acceptability of such a tax increase depends on whether
the public perceives some connection, an earmarking or diver-
sion of a portion of the funcls, to prevention programs."
But the earmarking of funds also has its difficulties. Accord-
ing to lane Smith Patterson, Secretary of Administration for the
State of North Carolina, state legislatures have traditionally
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resisted such proposals. "At the state level, legislatures and
governors across the country flatly dislike the earmarking of
public revenues and will fight you even though they agree with
what you want to do. They do not want funds to be dedicated
in the actual excise tax act. They want the funds raised first."
If revenues are not earmarked, there is always the possibility
that other demands possibly even other health care needs-
will siphon them off from programs to prevent alcohol prob-
lems. To this problem Patterson answers, "You will just have
to sell your state legislature on prevention."
Representative terms from entire chapter:
tax increase
