Toward the Prevention of Alcohol Problems Government, Business, and Community Action (1984) / Chapter Skim
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TAXING AND SPENDING
TAXING AND SPENDING
Pages 24-56
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From page 24... ...
The fact that liquor prices are currently at about one-half of the 1967 level can be attributed in part to congressional inaction with respect to federal excise taxes on alcoholic beverages. Current federal excise tax rates were set in 1951 but have been largely repealed by inflation since then.
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From page 25... ...
Similarly, an important consequence of an increase in the alcohol tax would be to reduce alcohol abuse and its attendant personal and social costs. I summarize here the evidence on the preventive effects of alcohol taxes and then discuss the distributional and revenue impacts of a tax increase.
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From page 26... ...
The Effect of Alcohol Taxes on Cirrhosis Mortality Statistics on the prevalence of chronic heavy drinking are not widely available. However, there is a widely accepted proxy measure -- the rate of deaths due to cirrhosis of the liver.
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From page 27... ...
. I viewed each of these tax increases as a test case in a sort of "natural experiment." For each of these test cases, the percentage change in the state's cirrhosis mortality rate was calculated; the test statistic was defined as the mortality rate during the 3 years before the tax increase.
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From page 28... ...
Before undertaking this task, we refined the annual state-level cirrhosis mortality data; our variable was the age-adjusted mortality rate for state residents ages 30 and over. Our principal result can be stated this way: other things being equal, a $1 per proof gallon increase in a state's liquor tax will reduce the state's cirrhosis mortality rate by 1.9 percent in the short run.
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From page 29... ...
In conclusion, there is considerable statistical evidence that a liquor tax increase causes an immediate and substantial reduction in cirrhosis mortality. If cirrhosis mortality rates are a reliable indicator of the prevalence of alcoholism, then it can be inferred that alcoholics' drinking habits are quite sensitive to the price of liquor.
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From page 30... ...
Furthermore, whether or not alcohol taxes are effective in reducing the costly consequences of excess consumption, they have the characteristic of exacting payment in proportion to consumption and hence (very roughly) in proportion to the social costs generated by their consumption.
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From page 31... ...
However, the available evidence suggests that the average household's demand for liquor is quite elastic; furthermore, poor households would tend to be more elastic than higherincome households. Therefore, for some fraction of poor households, an increase in alcohol tax rates would reduce expenditures on alcoholic beverages.
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From page 32... ...
federal excise taxes on alcoholic beverages has benefited heavy drinkers in some ways but has had the effect of increasing the prevalence of alcoholism and its attendant costs. Raising the excise tax would be a rather well-targeted response to the social burden that heavy drinkers as a group impose on the rest of society.
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From page 33... ...
From 1965 to 1980, as shown in Table 3-3, federal alcohol tax revenues declined from 3.6 to 1.4 percent of total federal tax receipts, while state and local government alcohol tax revenues declined from 1.8 to 1.2 percent of total receipts. Tax payments from alcoholic beverages also constituted a declining proportion of excise tax revenues.
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From page 34... ...
36 45 49 50 Per capita alcohol tax payments in constant dollars (1967) 38 38 29 19 Notes: Sales and excise taxes include general sales and gross receipts taxes; custom duties; motor fuel taxes; alcoholic beverage, tobacco products, and public utilities taxes; and other excise taxes including (in 1980-1981 only)
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From page 35... ...
. If the cirrhosis mortality rate is a reasonable index of the extent of heavy drinking, then the estimates imply that heavy drinkers are about as price-sensitive as the general population.
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From page 36... ...
National Center for Health Statistics, unpublished data from 22,842 respondents, Health Interview Survey, 1977. effect measured by Cook and Tauchen (which, I assume, depends only on liquor tax increases)
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From page 37... ...
At current prices, equalization of the tax per unit alcohol would require about a $0.30 increase in the price of a six-pack of beer and about a $2.40 increase in the price of a gallon of wine. If the damage from alcoholic beverage use depends solely on the quantity consumed, then shouldn't the tax rates per unit alcohol be equalized across beverage types?
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From page 38... ...
In such an economic environment those favoring the use of increased alcohol taxes to reduce alcohol-related damage should propose some form of ad valorem taxation. A tax levied as a fixed proportion of the wholesale price of alcoholic beverages would avoid the need for periodic new tax increases to keep pace with inflation.
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From page 39... ...
It was very difficult to find any information on three hours' notice; as a tax attorney, my sources are largely the Internal Revenue Code and regulations thereunder, which do not yield much information about alcohol consumption or the effects of excise tax increases on cirrhosis of the liver. When congressional consideration was given in 1982 to increasing excise taxes in an effort to raise revenues, I understand that Congress briefly considered increasing alcohol instead of tobacco excise taxes (which were ultimately increased)
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From page 40... ...
It could even create a negative tax impact, and alcoholic beverage taxes or profits (in the control states) are very important to the economy of almost every state.
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From page 41... ...
I am impressed with how difficult it is to get a state legislature to raise alcohol taxes unless there is some kind of emergency. Various reasons are given to not raise taxes: people might cross the border to other states; legislators are concerned that the poor should not be penalized.
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From page 42... ...
The direction of current excise and other tax provisions actually encourages greater use of alcohol. An effective tax policy would say, "Alcohol has a special status in society because it is a drug, and the Surgeon General says it contributes to (not necessarily causes)
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From page 43... ...
As I reflect on the comments of Dr. Cook and others regarding the use of tax policy to affect consumption, I have to note that two months ago I discussed the very same question with a lobbyist representing Miller Brewery.
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From page 44... ...
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 committee 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." The traditional position of the advocacy groups in our state during this period was, "No, it will not affect your business, you will still be in business, but it will affect our ability to direct resources into programs for prevention and intervention." I mention this as a word of caution.
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From page 45... ...
The cost of running the retail distribution portion of the Department of Liquor Control is currently $35 million a year; inventory management is another $30 million a year. The net effect of getting the state out of the liquor business and imposing the 2-cent-a-drink tax -- not counting the dedicated revenue or the revenue that would stay local or the revenue that we would earmark to alcohol prevention and intervention programs and drug prevention and intervention programs in the schools -- would mean a net revenue increase for the state over a 2-year period of $221 million.
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From page 46... ...
I do not know how long the opportunity for building coalitions will last, but I suggest that this opening be used to the fullest extent to create prevention-oriented public policy. MORE COMMENTS ON THE POLICY PROCESS DAN BEAUCHAMP, University of North Carolina As I understand it, Mr.
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From page 47... ...
We will retain -- and the legislation requires that we generate in addition to the tax revenues -- an amount of profit equal to the last fiscal year prior to the transition. Last year, that was a little over $103 million.
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From page 48... ...
It has become very clear that the political acceptability of such a tax increase depends on whether the public perceives some connection, an earmarking or diversion of a portion of the funds, to prevention programs.
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From page 49... ...
Are there survey data to that effect? GEORGE HACKER, Center for Science in the Public Interest A number of surveys show that, without any prior education, a clear majority of the public favors increased, earmarked revenues from taxation of alcoholic beverages.
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From page 50... ...
The next day, her mother learned that the text of the minister's lesson was, "Fear not, for thy Comforter is coming." Perception is critical. One of the critical things is directing alcohol taxes into prevention efforts.
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From page 51... ...
Whether alcohol taxes decrease consumption overall is less important than that we might be successful in getting a 10 or 15 percent set-aside from the funds raised. We should not set treatment against prevention.
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From page 52... ...
Raising excise taxes is not necessarily prevention. Since 1975 the National Institute on Alcohol Abuse and Alcoholism (NIAAA)
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From page 53... ...
JOHN NOBLE, National Institute on Alcohol Abuse and Alcoholism Tax monies already support treating people who are alcohol abusers and alcoholics. One contribution of identifying tax revenues that deal with consequences is to fuel a trade-off argument: we could stop paying so much for treating the consequences of alcoholism if we could spend some of that money on having fewer people who need such treatment.
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From page 54... ...
To give a practical example: for a number of years we have been trying to get the New York state tax on alcohol raised, with some portion of that tax dedicated to alcohol prevention and education. Many arguments were used against it: "We don't have enough data, we don't know this, we don't know that." Suddenly we had a $1.8 billion gap in the budget, and this year a $32 million increase in the tax on alcoholic beverages was passed.
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From page 55... ...
However, we do not focus very well on what we expect education to accomplish. As a person interested in primary prevention, I am concerned that the debates over tax policy at the state level are long, terribly complicated, and politically brutal, and dilute the focus of what we want out of primary prevention programs.
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From page 56... ...
But given the amount of data we have about tax policy, I am concerned that we not get sidetracked by something that takes energies away from the real objective of reducing the harmful effects of abuse. SHEILA BLUME, National Council on Alcoholism I am not moved by the argument that we should not talk about taxes because we should talk about something else.
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